Daily ETF Watch: Vanguard’s New Filing

The firm looks to add an indexed municipal bond fund to its lineup.

Reviewed by: Heather Bell
Edited by: Heather Bell

Filings for new funds from Vanguard are always momentous occasions. For an asset class, it’s like getting a stamp of approval from a religious leader. The mutual fund giant doesn’t roll out funds willy-nilly or float new ideas; it sticks to core asset classes, though that definition can evolve.


It was only about 18 months ago that it rolled out its first international bond funds, which included the launches of the Vanguard Total International Bond ETF (BNDX | B-57) and the Vanguard Emerging Markets Government Bond ETF (VWOB | B-34) as separate share classes of larger mutual funds. Those funds have taken off, with BNDX at $3 billion in assets under management and VWOB heading toward $260 million.


This time around, the fund provider is looking to add a passively managed broad-based municipal bond fund. The Vanguard Tax-Exempt Bond Index Fund and its ETF share class will track the Standard & Poor’s National AMT-Free Municipal Bond Index, which is notable for several reasons.


For one thing, it’s the index underlying the iShares National AMT-Free Muni Bond ETF (MUB | B-79), which is the biggest of the broadly focused municipal bond ETFs by a pretty sizable amount—$4 billion in assets under management.


The twist is that MUB charges 25 basis points, and its Vanguard competitor, when it launches, will cost just 12 basis points. Given that and Vanguard’s stunning success in the ETF space, as well as its devoted following among investors, investor dollars will likely be quick to follow the fund’s launch.


Vanguard noted in a press release that Lipper says the average fee for muni funds in the traditional bond space is 0.97 percent, and 0.49 percent for ETFs.


As unbelievable as it sounds, another interesting thing about the filings is that the original index fund provider doesn’t have any index-based funds covering the municipal bond space. Vanguard offers 12 actively managed muni bond funds that have about $140 billion in assets under management, but no indexed funds. The newly proposed fund with its ETF share class would be a first.


Municipal bonds are tax advantaged, and popular for investors looking for income-generating investments outside of a 401(k) or IRA. The underlying index for the Vanguard Tax-Exempt Bond Index Fund covers the full yield curve for investment-grade municipal bonds, but excludes bonds issued by U.S. territories. This means Puerto Rico—a developing area of interest for some muni bond investors—is not included. The index’s total number of components stands at more than 10,000.



Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.