Vanguard Short-Term Tax-Exempt Bond ETF Shares VTES

Vanguard Short-Term Tax-Exmpt Bd ETF holds a quantitatively derived Neutral Morningstar Medalist Rating. The rating suggests the model does not express a clear expectation of outperformance or underperformance relative to peers over a full market cycle.

People: Above Average

Note: This share class' People Pillar rating and analysis are inherited from an analyst-covered share class under the same Strategy Provider Company (rolled up to Branding Name) and Morningstar Category Broad Group: Vanguard Total Bond Market ETF (SecID: FOUSA06C1Y).

Process: Below Average

The fund is well- or fairly diversified and largely represents the US Fund Muni National Short category's opportunity set. The US Fund Muni National Short category has historically been challenging for passive investing. Active managers tend to deliver better performance in this category compared with passive strategies.

Performance (in US Dollar)

Over the past 12 months, Vanguard Short-Term Tax-Exmpt Bd ETF share class returned 4%, mirroring its category index, the Bloomberg Municipal 3 Yr 2-4 TR USD Index (4.1%), but outperforming its Morningstar category peers (3.9%).

Price

Vanguard Short-Term Tax-Exmpt Bd ETF's Prospectus Adjusted Expense Ratio is 0.05% per year. It places it in the cheapest quintile of the Morningstar US Fund Muni National Short Category, where the median fee is 0.43% per year. This cost positioning translates into a Medalist Rating Price Score of 2.47, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.

Vanguard Short-Term Tax-Exmpt Bd ETF is assigned a Below Average Process rating. Morningstar's algorithmically assigned Passive Process ratings are first derived by comparing the historical efficacy of passive investments relative to active peers. For fixed-income funds, this category-level score is then adjusted based on the fund's characteristics, including its ability to diversify risk and represent the category's opportunity set. To maintain consistency and account for all available data, raw scores are averaged across funds tracking the same benchmark.

Representativeness

The fund largely represents the Muni National Short category's opportunity set.

Diversification

The fund is well- or fairly diversified, either based on its top-holdings exposure or its number of bond holdings relative to the category average.

Active versus Passive

The Muni National Short category has historically been challenging for passive investing. Active managers tend to deliver better performance in this category compared with passive strategies.

Investment Strategy

The investment strategy as stated in the prospectus is: the investment seeks to track the performance of the S&P 0-7 Year National AMT-Free Municipal Bond Index that measures the investment-grade segment of the U.S. municipal bond market with remaining maturities between one month and seven years. Under normal circumstances, the fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the bonds that make up the Target Index. The Target Index includes municipal bonds issued primarily by states, local governments, and agencies whose interest is exempt from U.S. federal income taxes and the federal alternative minimum tax (AMT). It is non-diversified.

Vanguard's fixed-income index team has a lot of advantages. It taps into a global network of portfolio managers, sector specialists, and trading desks to deliver accurate index tracking in the markets that it touches. It earns an Above Average People Pillar rating.

Experienced managers make up Vanguard’s team. They’re supported by a deep bench of talent that allows them to focus on portfolio construction and tracking performance. Each fund has a lead manager who collaborates with traders and sector specialists to ensure tracking performance stays within well-defined guardrails.

Specialization extends in many directions. ETF specialists help manage creation and redemption baskets, while a dedicated data team handles index changes and corporate actions. International specialists help manage portfolios in local markets outside of the US to keep costs down and tracking tight.

Many bonds aren’t available for trading, so index funds cannot hold every bond in an index. Despite that drawback, Vanguard’s team has continued to invest in new ways to improve the precision of its tracking efforts while keeping a lid on trading costs. It recently expanded its quantitative unit, which developed an optimization tool that incorporates traders' insights and liquidity data to improve tracking performance.

Note: This share class' People Pillar rating and analysis are inherited from an analyst-covered share class under the same Strategy Provider Company (rolled up to Branding Name) and Morningstar Category Broad Group: Vanguard Total Bond Market ETF (SecID: FOUSA06C1Y).

Vanguard maintains its High Parent Pillar rating as it continues to grow under new leadership.

CEO Salim Ramji has had a busy first year captaining Vanguard’s crew, and the ship remains pointed in the right direction. The firm made its largest round of fee cuts in early 2025, which came at an estimated cost of USD 350 million. It established a separate division dedicated to its advice and wealth management efforts, a sign that it wants to seriously compete within those lines of business. Asset growth has continued to be a huge success. Only BlackRock’s inflows rival the money Vanguard is taking in. Likewise, the number of clients it serves has more than doubled since 2015.

Despite that success, an ever-growing number of clients has presented a challenge: Vanguard can’t grow its services fast enough to keep up with demand. In some instances, it has had to curb certain services and capabilities or raise fees on others to cope, causing some loyal clients to criticize what they perceive as deteriorating services.

Vanguard has ambitions to bring its disruptive legacy to the bond market. It created roughly a dozen low-cost bond exchange-traded funds for US investors and several others abroad over the 12 months through June 2025. All have low fees in their respective categories, and the actively managed strategies align with Vanguard’s philosophy. They are relatively easy to understand and are conservatively managed.

Vanguard has another opportunity to prove that clients are still its priority. On the surface, its endeavor into the high-fee deal-making world of private assets alongside Wellington and Blackstone looks like a cultural mismatch. So far, the collaboration hasn’t produced anything that’s concerning.

Note: This share class' Parent Pillar rating is analyst-driven, as its Branding Name, Vanguard (Branding Name ID: BN00000AAL), is covered by Morningstar Manager Research.

Performance is evaluated in US Dollar, measured to the end of April 2026.

Short-Term Performance

Over the past 12 months, Vanguard Short-Term Tax-Exmpt Bd ETF share class returned 4%, mirroring its category index, the Bloomberg Municipal 3 Yr 2-4 TR USD Index (4.1%), but outperforming its Morningstar category peers (3.9%). Over the three-year period, it returned 3% per year, trailing both the index (3.1% per year) and its Morningstar category peers (3.2% per year).

Vanguard Short-Term Tax-Exmpt Bd ETF's Prospectus Adjusted Expense Ratio is 0.05% per year. It places it in the cheapest quintile of the Morningstar US Fund Muni National Short Category, where the median fee is 0.43% per year. This cost positioning translates into a Medalist Rating Price Score of 2.47, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.