Vanguard Short-Term Treasury ETF vs Tax-Exempt Bond ETF
VGSH delivers stronger returns and lower volatility, while VTES offers federal tax-exempt income for high-earners.
The Vanguard Short-Term Treasury ETF (VGSH) and the Vanguard Short-Term Tax-Exempt Bond ETF (VTES) are two distinct investment options within the short-duration fixed income category. The VGSH offers a lower expense ratio of 0.03% and a higher trailing yield of 3.8%, while the VTES, on the other hand, provides a 2.7% yield but has a higher expense ratio.
VGSH primarily invests in U.S. government debt, minimizing credit risk and offering high liquidity. Its portfolio includes various U.S. Treasury securities, such as the United States Treasury Note/Bond 3.50% 01/31/2028 at a yield of 2.07% and the United States Treasury Note/Bond 4.63% 04/30/2029 at a yield of 1.43%. In contrast, VTES focuses on municipal bonds, with a selection of 3,913 issues tracked by the S&P 0-7 Year National AMT-Free Municipal Bond Index.
Notable positions within VTES include the Vanguard Municipal Low Duration Fund 12/31/2049 at a yield of 5.42% and State of California debt at a yield of 0.60%.
The main difference between the two ETFs lies in their credit risk and tax treatment. VGSH's exposure to U.S. Treasury bonds results in lower sensitivity to interest rate fluctuations, making it a more stable option for investors seeking capital preservation or funds they may need in the near future. Conversely, VTES offers tax-free income, which can be advantageous for investors in high tax brackets, but it comes with greater price and credit risk due to its longer duration of approximately 7.3 years.
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