Summary: In an environment where yields on short term municipal bond funds are miniscule, Vanguard’s focus on super low fees make the Vanguard Limited Term Tax Exempt Fund VMLUX standout.
Commentary: Most investment grade short term municipal bond funds currently yield less than 1%. In a category where average fees can be above .5%, this does not leave much room before you actually earn a negative yield on the fund after expenses. This is why Vanguard’s reputation for low fees is extra important for short term municipal bond funds. For those investors with $50,000 or more to invest, the Vanguard Limited Term Tax Exempt Fund has a tiny expense ratio of .12% (.2% for those with less than $50K). Like all Vanguard funds there is no load on this fund.
With a duration of 2.3 the Vanguard Limited Term Tax Exempt fund has a slightly longer duration than the category average. However, it also takes less credit risk, which we feel is a nice balance in a short term municipal bond fund.
Short-Term Performance: Good. The fund has slightly underperformed the average short term municipal bond fund over the last 12 months by -.05%. However, it has outperformed the average fund by .31% per year on average over the last 3 years.
Long-Term Performance: Excellent. The Vanguard Limited Term Tax Exempt Fund VMLUX has outperformed the average short term municipal bond fund over the last 5 and 10 year time frames. The fund has outperformed the average short term municipal bond fund by .65% per year on average over the last 5 years, and by .51% per year on average over the last 10 years.
Risk Level Relative To Returns: Good. The firm takes a bit more interest rate risk than other short term municipal bond funds and a bit less credit risk a strategy which has contributed to its long term outperformance.
Fees: Excellent. No sales load and 0.12% expense ratio. You can learn more about bond mutual fund fees here.
Manager Tenure: Good. The Vanguard Limited Term Tax Exempt Fund VMLUX’s portfolio manager Marlin G. Brown has managed the fund since 2008. With other fund family’s we would say that this was just ok, however Vanguard is different. They have very tight internal controls on how far their managers can stray from their benchmarks, so the fund company itself has a lot of say over each of the individual managers.