The forthcoming presidential election is certainly adding a healthy dose of intrigue into the municipal bond space. That said, Vanguard has a pair of muni ETF options that are worthy of consideration.
A CNBC report highlighted the benefits and pitfalls of the muni space with the election fast approaching. Depending on the policy agendas of the presidential candidates, munis could see strong upside.
To that note, investors looking for muni exposure can opt for passive options from Vanguard. The issuer has a broad-based option with the Vanguard Tax-Exempt Bond ETF (VTEB) and a short-term maturity date option with the Vanguard Short-Term Tax-Exempt Bond ETF (VTES).
VTEB tracks the Standard & Poor’s National AMT-Free Municipal Bond Index, which measures the performance of the investment-grade segment of the U.S. municipal bond market. Overall, this index includes municipal bonds from issuers, primarily state or local governments or agencies whose interests are exempt from U.S. federal income taxes, and the federal alternative minimum tax.
To mitigate rate risk in municipal bonds, VTES is an ideal option. The fund tracks the S&P 0-7 Year National AMT-Free Municipal Bond Index. That index is designed to balance the need for tax efficiency with the need for tax-exempt yield. This balance can translate to potentially higher yields than those afforded by competing strategies, for an appropriate level of duration risk.
An election year could also mean forthcoming volatility for the broader bond market. Again, presidential policy strategies can affect various corners of the bond market. This opens up opportunities for investors to also get bond exposure via active management.
