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A Steady, Low-Cost Muni Fund

Elizabeth Foos

Beth Foos: The Vanguard suite of tax-exempt funds is backed by significant analytical and managerial firepower. That, combined with relatively low price tags, makes for a generally compelling package for municipal-bond investors.

Vanguard uses a "hub and satellite" structure to build its strategies. The hub consists of senior managers with big-picture expertise that set policy for interest-rate, sector, and quality positioning. Other managers, credit analysts, and traders make up the team's interest-rate, tax-backed, revenue-backed, and high-yield satellites and are responsible for implementing strategies set by the hub.

By design, these muni funds generally stick to tight ranges for interest-rate and credit risk. Typically, this results in a high-quality bias across the offerings. In risk-led markets, that means that returns can be lacking when compared with more aggressive peers; yet over the longer term, performance here has been solid, supported by their straightforward approach and low costs.

For example, one the firm's largest tax-exempt offerings, Vanguard Intermediate-Term Tax-Exempt Fund (VWITX), recorded a 4.2% 10-year annualized return, which beats nearly 80% of its peers. That, combined with an experienced team and low expenses, earns this fund a Morningstar Analyst Rating of Silver.