Tax-Free ETF VTEB Pulls in Nearly $1 Billion of New AUM
- VTEB offers tax benefits and a safe haven as markets tumble and uncertainly looms.
- Investors have poured nearly $1 billion into the ETF this year.
- Fixed-income investments have seen strong inflows recently.
This is the second in a series of tax-related articles appearing each Monday until April 15.
Exchange-traded funds that invest in tax-free municipal bonds linger in the shadows, quietly paying out dividends while the Vanguard S&P 500 ETFs (VOO) of the world grab the limelight. But that hasn’t stopped investors seeking shelter from finding the Vanguard Tax-Exempt Bond ETF (VTEB).
The fund has pulled in $837.5 million so far this year, including $663 million during the five days through April 3.
Fears of recession, sparked by President Donald Trump’s tariffs that have battered stock markets this year and especially so in the past few days, are pushing investors into safe-haven, fixed-income investments like VTEB.
Fixed-Income Flows
Some of the biggest inflows over the past month have gone into fixed-income investments like the iShares 0-3 Month Treasury Bond ETF (SGOV) with $4.9 billion in inflows and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL), which has grabbed $4.3 billion.
Source: Data from etf.com's ETF Pulse Tool
Besides offering a low-risk place to put money, VTEB’s tax-free yield attracts high-net worth individuals with taxable brokerage accounts, etf.com Senior Content Editor Kent Thune, CFP, said.
“Muni bonds typically have lower yields than corporate bonds, but the tax-free aspect often makes up for the lower yield, especially for investors in high tax brackets,” he said. “The higher the tax bracket, the greater the tax-equivalent yield.”
"Investors in high tax brackets looking for stability and yield in taxable brokerage accounts" may be drawn to the fund, Thune said.
VTEB's 3.6% Yield
VTEB, which invests in nearly 10,000 investment grade bonds issued to fund projects like highways and schools, pays an approximately 3.6% dividend yield and began trading in 2015. It’s gained 1.5% since March 27 when it hit its lowest price since November 2023. The broad VOO ETF has dropped 10% since March 27.
A March 26 note on the Nasdaq website from investment services firm BNK Invest said VTEB appeared "oversold" after recent price declines.
