Vanguard Launches First Active Muni Bond ETFs

The Vanguard Group is leveraging the expertise of its fixed income mutual fund business with the launch its first actively managed municipal bond ETFs.

The world's second-largest exchange-traded fund issuer didn't clone any of its 13 active muni bond mutual funds for the Vanguard Core Tax Exempt Bond ETF (VCRM) and the Vanguard Short Duration Tax-Exempt Bond ETF (VSDM). Still, the new funds, which started trading Thursday, Nov. 21, tap the Malvern, Pa.-based asset manager's deep muni bond expertise, according to Stephen McFee, lead manager of VCRM.

“We have mutual funds and ETF offerings, and we’re focusing on ETFs now,” he said. “These ETFs are not mirrors of any mutual fund version (at Vanguard); this is a continuation of our plans to bolster the muni business.”

In addition to Vanguard's 13 municipal bond mutual funds, the firm offers four index-based muni bond ETFs, muni bond money markets and the two new active muni ETFs within its $21.4 trillion global fixed income business. It's U.S. ETF business manages $2.64 trillion in 83 funds.

Vanguard’s total muni bond fund footprint is just over $230 billion.

Vanguard's Muni Bond Push

McFee said one of the selling points of the new active muni ETFs is access to seasoned portfolio management for ETF-level fees.

VCRM, which offers broad exposure to investment grade municipal bonds, has an expense ratio of 12 basis points, which compares to an average of 36 basis points for comparable funds.

VSDM, which will concentrate muni exposure to the short end of the yield curve, also charges 12 basis points, compared to an average of 27 basis points for competing funds.

VSDM is managed by Adam Ferguson, who has been managing municipal bond portfolios at Vanguard for more than 20 years.

The two ETFs represent the first new active municipal bond funds from Vanguard in 20 years, and they follow the December 2023 launch of two other ETFs in the fixed income space, the Vanguard Core Bond ETF (VCRB) and the Vanguard Core-Plus Bond ETF (VPLS).

“Vanguard is high on fixed income right now,” McFee said. “We believe bonds are back.”