A sound investment process and strong management team underpin Vanguard Intermediate-Term Tx-Exm Bd ETF's Morningstar Medalist Rating of Gold. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's effective investment philosophy supports a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in A rated bonds and an overweight in debt with 10- to 15-year maturities compared with category peers. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm a High Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Vanguard Intermediate-Term Tx-Exm Bd earns a High Process Pillar rating. Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. The leading factor in the rating is its parent firm's excellent long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.6 stars. The parent firm's five-year risk-adjusted success ratio of 72% also contributes to the process. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their relatively high success ratio suggests that the firm does well for investors and that this fund may benefit from that. This fund tracks an index, which supports the rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons.

The investment strategy as stated in the fund's prospectus is: 

The investment seeks to track the performance of the S&P Intermediate Term National AMT-Free Municipal Bond Index.  This index measures the performance of the investment-grade, fixed-rate U.S. municipal bond market with maturities between one month and twenty years as determined by the index provider, S&P Dow Jones Indices LLC. All of the fund’s investments will be selected through the sampling process, and and at least 80% of the fund’s assets will be invested in securities held in the index.  

  The portfolio holds assets with a higher average surveyed credit quality of AA, compared with the category average of A, and it holds no non-investment-grade assets, despite the average peers' 1%. Strategies with less credit risk may help to provide a reliable ballast during periods of market stress. In terms of long-term interest-rate risk, this strategy is on par with peers. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 4.8-year duration, is expected to gain 4.8% of its net asset value if interest rates drop by 1 percentage point, and vice versa.

High

Process

Vanguard Intermediate-Term Tx-Exm Bd benefits considerably from its team, earning it an Above Average People Pillar rating. The fund takes a solo manager approach, with Justin Schwartz as the only listed manager at the helm, who brings eight years of portfolio management experience to the table. They manage a total of four strategies, with solid long-term prospects. The strategies average a Gold asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate. With only one manager listed on the strategy, the passive strategy is vulnerable to key-person risk. 

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Above Average

People

The Vanguard Group retains a High Parent rating. 

Mutual ownership, low costs, and a direct-to-investor playbook have helped spur Vanguard's leadership within the United States. Client service missteps notwithstanding, Vanguard over the past decade has grown its market share of U.S. open-end and exchange-traded fund assets at about a 5% annualized clip. At that rate, Vanguard's portion of the U.S. industry will cross 50% around 2035.

True, some competitors can now match or even undercut Vanguard on fees for broad market exposure. But Vanguard's burgeoning advice business could help it keep or even extend that lead. Through Digital Advisor and Personal Advisor Services, Vanguard has built an increasingly compelling ecosystem of advice for investors with simple to complex needs.

Vanguard is also using its advice business to expand overseas, but that's a work in progress. Of Vanguard's USD 7.6 trillion in global assets under management in March 2023, non-U.S. investors owned less than 10%, a figure that has changed little in recent years. Strategic shifts in China and other markets account for the slow pace, including returning money to institutions that had been layering on fees. Vanguard hopes to recoup that money and more by focusing on individual investors and the advisors who serve them. Provided Vanguard sticks to its playbook, its advantages should translate into success abroad, too.

Parent

Vanguard Intermediate Tax-Exempt Bond ETF

VTEI tracks a market value-weighted index of tax-exempt investment grade debt issued by US state and local governments or agencies. The fund includes muni bonds with an effective maturity below 20 years.

Vanguard launched a new municipal bond ETF, the Vanguard Intermediate-Term Tax-Exempt Bond ETF.  The ETF primarily invests in fixed-rate municipal bonds with maturities between one month and twenty years. This article reviews the VTEI ETF in depth and then compares it against three competing funds with similar goals. For those who want an ETF to play it somewhat safe compared to other municipal bond strategies, then I would give VTEI my Buy rating.

VTEI: Vanguard's New Intermediate Muni ETF

Vanguard California Tax-Exempt Bond ETF

Municipal bonds offer a mix of relative quality and yield. So the timing couldn't be more auspicious for exchange traded fund (ETF) provider Vanguard to debut a pair of muni-focused funds.

News for Vanguard Intermediate Tax-Exempt Bond ETF ETF (VTEI)