Like the rest of the muni bond market, 2025 started slow amid heavy issuance. However, April saw increased inflows into VTEC as demand started to eat away at the heavy supply that flooded the muni market. California munis also played a role in helping to rebuild Southern California, which was impacted by Los Angeles wildfires in the beginning of the year.
VTEC tracks the S&P California AMT-Free Municipal Bond Index, giving investors exposure to the investment-grade California municipal bond market. Per the fund’s description, VTEC uses a sampling technique to closely match key benchmark characteristics: sector weight, coupon, maturity, effective duration, convexity, and credit quality.
Munis are coveted for their tax-free income, making VTEC an option to consider for California residents. The majority of the fund’s assets invest in fixed income securities whose income will be exempt from federal income taxes, including the federal alternative minimum tax, and California state income taxes.
True to form with regard to Vanguard’s funds, it features a low expense ratio of 0.08%.
Broader Options in Munis
Munis have been attracting attention this year given their strong credit fundamental and competitive yields. Again, the federal tax-free income is also a prime feature. While California bonds offer advantages for niche investors focusing on the state’s bonds, Vanguard also has other options to take advantage of munis such as the Vanguard Tax-Exempt Bond ETF (VTEB ). It tracks the Standard & Poor’s National AMT-Free Municipal Bond Index, giving investors exposure to debt issues from state or local governments or agencies whose interests are exempt from U.S. federal income taxes, and the federal alternative minimum tax.
Additionally, Vanguard has three options for those looking for tailored exposure to the full spectrum of the yield curve:
- Vanguard Short-Term Tax-Exempt Bond ETF (VTES ) tracks the S&P 0-7 Year National AMT-Free Municipal Bond Index, balancing tax efficiency with tax-exempt yield.
- Vanguard Intermediate-Term Tax-Exempt Bond ETF (VTEI ) tracks the S&P Intermediate Term National AMT-Free Municipal Bond Index, and has an average stated maturity of nine years.
- Vanguard Long-Term Tax-Exempt Bond ETF (VTEL ) tracks the S&P 10+ Year National AMT-Free Municipal Bond Index. This index encompasses muni bonds with maturities of 10 years or higher, maximizing yield if investors don’t mind the rate risk.
For more news, information, and analysis, visit the Fixed Income Content Hub.
