Vanguard High-Yield Tax-Exempt Fund VWAHX

Vanguard High-Yield Tax-Exempt combines experienced leadership with a disciplined approach that stands out and delivers consistently strong results versus muni national-long Morningstar Category peers.

Deep muni market experience underpins the team’s stability and consistency. Industry veteran Mathew Kiselak has led this strategy and Vanguard Long-Term Tax-Exempt since 2010 and has been the team’s leading voice on the long end of the muni yield curve. The firm added Adam Ferguson to the portfolio in late 2023 to bolster the management team’s depth. Ferguson has been with Vanguard for more than two decades, began managing the firm’s municipal mandates in 2013, and has led several of its state-specific and short-term muni strategies.

A sizable cast of analysts and traders enhances the managers’ abilities to uncover relative value opportunities and provide a durable edge over many muni national-long category peers. The firm also continues to invest in quantitative tools, which have improved this team’s efficiency.

A disciplined process and low fees create a meaningful advantage over peers. The team builds a diversified portfolio that aims for strong risk-adjusted results; it measures those outcomes against a custom benchmark that loosely reflects the Bloomberg Municipal Index. Kiselak incorporates guidance from senior leaders on the macro framework, which includes duration, sector outlook, and positioning. He works with sector experts to refine the approach through security selection and taps into a dedicated risk team for ongoing portfolio oversight. Instead of making outsized bets on individual names, the team focuses on thoughtful structural trades along the muni yield curve and relative value opportunities across sectors.

The strategy’s risk profile often straddles the muni national-long category (where it currently resides) and the high-yield muni category. The December 2025 portfolio’s 43% of assets in BBB or lower rated was noticeably higher than its typical muni national-long peer’s (17%), yet that stake in mid- and lower-quality debt has stayed much lower than that of the typical high-yield muni constituent (72%). While this makes performance comparisons tricky, it doesn’t detract from the strategy’s appeal.

The managers’ consistent execution and selective tilts have supported strong long-term absolute and volatility-adjusted returns. Since August 2010 (Kiselak’s first full month), the admiral shares’ 4.0% annualized gain through January 2026 outpaced more than 90.0% of distinct peers and the Bloomberg Municipal Year Index’s 3.2% return.

A disciplined, risk-conscious process continues to stand out from peers; the strategy earns an Above Average Process rating.

The team executes a well-defined investment framework that continues to add long-term value in the muni market. It manages an internal benchmark built from the investable universe of high-quality, liquid muni bonds with characteristics broadly aligned with the Bloomberg Municipal Index. Vanguard’s senior investment committee, a group of fixed-income leaders, set the macro outlook, which guides duration, yield curve, and sector tilts. The muni sector teams offer more specialized insights and narrow the opportunity set through bottom-up security selection, using proprietary models that assess each bond’s fit with the strategy’s mandate. The managers integrate this research to position the portfolio relative to the custom index and work closely with a dedicated risk team that provides continuous oversight.

Despite its name, the strategy sits in the muni national-long category on account of its lower allocations to BBB and below rated bonds compared with many high-yield muni strategies. Still, it takes on more credit risk than its peers, distinguishing it from both its category and its higher-quality sibling, Vanguard Long-Term Tax-Exempt. Yet, the strategy doesn't need to take outsized bets to remain competitive because of the ongoing advantage of ultralow fees. The team therefore treads lightly in more-volatile areas of the muni market, including segments such as Puerto Rico. As part of its risk discipline, the portfolio’s sector exposures and yield-curve stance rarely stray far from the internal benchmark. The team also keeps at least 4% of assets in cash and cash equivalents to maintain ample liquidity.

The managers keep the fund’s duration close to its internal benchmark, which has ranged between 5.0 and 9.0 years for the trailing five years ended December 2025, but adjust it with guidance from the senior investment committee, which may cause the fund’s duration to diverge from the Bloomberg Municipal Index. For instance, in 2025, they saw attractive value at the longer end of the muni yield curve and extended the overall duration by about 0.7 years. The December 2025 portfolio’s 8.4-year duration was about one-fifth of a year longer than the peer median.

This portfolio has historically taken more credit risk relative to muni national-long category peers, and its combined exposure to bonds rated BBB or lower and nonrated debt has ranged between 35% and 45% for the trailing five years ended in December 2025. The strategy’s 44% stake was about 5 percentage points higher than the five-year average.

The team emphasizes diversification: No position exceeds 1% of assets, and most represent just a handful of basis points. Further, hospitals (14% as of December 2025), transportation (17%), and higher education (7%) revenue bonds are notable sector allocations. Managers have leaned into industrial development—especially prepaid gas—in recent years as that segment of the market has grown in the market; the portfolio’s 18% stake as of December 2025 was roughly 5 percentage points higher than three years earlier. Housing is another key focus, and the fund’s 6% allocation in these bonds was about 3 percentage points higher than three years earlier.

The managers saw less attractive value in transportation revenue sectors, including toll roads and airports, and they have trimmed these exposures in recent years. The fund’s 17% allotment to this area as of December 2025 was roughly 6 percentage points lower than three years ago.

Seasoned leadership and deep supporting resources provide a clear edge over most peers; the strategy earns an Above Average People rating.

A veteran management team leads this strategy. Lead manager Mathew Kiselak has been at the helm since July 2010, bringing nearly four decades of muni market experience. He has served as a leading voice that guides the broader muni suite’s positioning on the long end of the muni curve. Kiselak now manages this portfolio alongside muni veteran Adam Ferguson, who brings about two decades of industry experience and joined the portfolio roster in late 2023 to add depth. The duo has worked together for more than a decade at the firm, and their collaboration continues to strengthen.

They draw support from a seasoned analyst and trading team. This 28-member group averages more than a decade of industry experience and forms one of the largest muni research teams in the industry. The analysts provide both fundamental and relative value insights, which strengthen the team’s collaboration and improve the managers’ security-selection process. Over the years, the firm has also enhanced its toolkit with proprietary quantitative models, which further improved the team’s process and efficiencies.

Manager ownership, which reflects alignment with investors, could be better in the strategy and across the muni complex. Kiselak and Ferguson do not invest any money in the fund.

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.

Long-term absolute and volatility-adjusted returns are compelling.

Over lead manager Mathew Kiselak’s tenure from August 2010 through January 2026, the fund’s admiral shares’ 4% annualized gain outperformed more than 90% of muni national-long category and beat the Bloomberg Municipal Index by 86 basis points. The strategy’s information ratio (a measure of excess return over excess standard deviation versus the benchmark) also ranked in the category’s top decile. Much of this outperformance can be attributed to higher allocations to BBB bonds, below-investment-grade rated debt, and nonrated securities relative to peers, as these credits performed quite strongly over much of the previous decade. Against the lower-quality high-yield muni category, the strategy’s showing is muted, trailing more than two-thirds of the category during the same period.

The portfolio’s credit-quality profile also had an impact on its relative results during muni market selloffs. During the pandemic-related volatility in 2020’s first quarter, the strategy lagged nearly 70% of muni national-long peers. This same credit-quality pattern affected the fund throughout 2022 as muni markets struggled. Its 11.7% loss was worse than the muni national-long peer median’s 11.2% loss but was significantly better than the typical high-yield muni fund’s 13.7% drop.

When investors reached for yield, and the muni market gained strength in 2024, its relatively larger allocations to lower-quality debt boosted returns, and the fund outpaced most of its peers; its 3.4% gain that year beat its index and peer median by 234 and 97 basis points, respectively.

In 2025, the fund’s allocation to higher-yielding, industrial development revenue bonds contributed to outperformance. Over the full year, the fund’s 4% return ranked near the top quartile.

Vanguard High-Yield Tax-Exempt's Prospectus Adjusted Expense Ratio is 0.17% per year. It places it in the cheapest quintile of the Morningstar US Fund Muni National Long Category, where the median fee is 0.55% per year. This cost positioning translates into a Medalist Rating Price Score of 2.18, 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.