Vanguard Short-Term Tax-Exempt Bond ETF

VTES

Market cap $1.33B

At the very top of the list for anyone looking to retire right now without subjecting themselves to significant market swings, ETFs have become incredibly popular.

The tax exempt status of municipal bonds could be in jeopardy as Congress mulls over whether to tax the income from these debt issues. In the meantime, Vanguard has eight ETFs to contemplate when looking to attain muni exposure.

In times of uncertainty in the bond market, there's one thing for certain. And that's that deciding where to get exposure can be complex.

There could be a silver lining in the volatile clouds hovering above the bond markets. Investors may want to give municipal bonds a closer look given their sound fundamentals.

Vanguard Short-Term Tax-Exempt Bond ETF is designed to provide low-risk, tax-exempt income for higher-rate taxpayers, but its yield is uncompetitive versus alternatives. Despite low fees and solid diversification, VTES's 3% yield (5% tax-equivalent) is easily beaten by short-term Treasuries or managed muni funds. The issue isn't with Vanguard or the fund's construction, but with the short-term muni index sector itself, which simply doesn't pay enough.

On Thursday, Vanguard expanded its selection of fixed income ETFs with the launch of the Vanguard Long-Term Tax-Exempt Bond ETF (VTEL) and the Vanguard New York Tax-Exempt Bond ETF (MUNY).  Both of these new Vanguard funds offer a distinct strategy for building municipal bond exposure.

Market volatility continues to rain heavy in the equities market. That's opening additional opportunities for investors looking to add bonds to counterbalance the market fluctuations.

The credit risk profile for corporate bonds has improved. But given the abundance of market uncertainty, it may be best to stick to Treasuries, or for additional yield, municipal bonds.

Right now, the municipal bond space has a trifecta of tailwinds blowing in its favor. That said, the time is right for investors who have not yet considered adding munis to their existing bond portfolio.

With an incoming presidential administration in 2025, municipal bonds are in play as infrastructure plans and other project initiatives could shape the muni debt space in the new year. On that note, Vanguard has a pair of muni bond-focused exchange-traded funds (ETFs) to consider.