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January 07, 2015 at 07:03 AM
Vanguard has plans to offer a national municipal bond index fund with an exchange-traded fund share class. The investment management company filed a registration statement Tuesday with the Securities and Exchange Commission.
The new Vanguard Tax-Exempt Bond Index Fund will be the firm’s first tax-exempt index fund and ETF. It is expected to be available in the second quarter of 2015, according to a statement, and will offer three share classes: investor shares, admiral shares and ETF shares.
“For investors in high tax brackets, a high-quality, broadly diversified municipal bond fund or ETF can provide tax advantages as well as diversification from the risks of the equity market,” said Vanguard CEO Bill McNabb in a statement. “Vanguard is pleased to bring a low-cost index option to the municipal category as a complement to our lineup of low-cost actively managed tax-exempt bond funds.”
Vanguard Tax-Exempt Bond Index Fund’s target benchmark is the S&P National AMT-Free Municipal Bond Index. The fund, which will offer investors exposure to investment-grade municipal bonds across the entire yield curve, is intended to provide a sustainable level of current income that is exempt from federal personal income taxes, Vanguard says.
The investor, admiral and ETF Shares have estimated expense ratios of 0.20%, 0.12% and 0.12%, respectively.
Meanwhile, as of data from Dec. 31, 2013, the municipal bond funds in Lipper’s General and Insured Municipal Debt Funds category have an average expense ratio of 0.97%, and comparable ETFs in the category have an average expense ratio of 0.49%.
Investor shares will require a minimum initial investment of $3,000 and Admiral Shares will require a minimum initial investment of $10,000. These share classes will also include a 0.50% purchase fee to “defray portfolio transaction costs and enable the fund to more closely track its benchmark,” the firm stated.
Adam Ferguson, a portfolio manager in Vanguard Fixed Income Group, will manage the new fund.
