Vanguard Core Tax-Exempt Bond ETF (VCRM): Tax-Advantaged Yield and Actively Managed Investment Grade Muni Bonds

Vanguard Core Tax-Exempt Bond ETF (VCRM) is an actively-managed ETF that focuses on high-quality, investment-grade muni bonds, offering a tax-advantaged 3.6% dividend yield. However, the yield is relatively low compared to other options. Investors should consider other choices in the muni bond ETF space, as there may be better options available.

PGIM, the global investment management business of Prudential Financial, Inc., has launched two new actively managed exchange-traded funds (ETFs) focused on municipal bonds. The PGIM Ultra Short Municipal Bond ETF (PUSH) and the PGIM Municipal Income Opportunities ETF (PMIO) aim to provide investors with tax-efficient income and capital appreciation opportunities.

The PGIM Ultra Short Municipal Bond ETF (PUSH) seeks total return through a combination of current income and capital appreciation by investing at least 80% of its portfolio in municipal obligations exempt from federal income taxes. This ETF is designed for investors looking for a more conservative strategy with tax efficiencies. It primarily invests in investment-grade muni bonds and up to 10% in high yield muni debt obligations, maintaining a weighted average portfolio duration of two years or less. With a 0.15% net expense ratio, PUSH is the lowest-cost active ETF in the Morningstar Short Muni category [1].

The PGIM Municipal Income Opportunities ETF (PMIO) offers a dynamic income opportunities strategy, investing at least 70% of its portfolio in investment-grade muni debt obligations and up to 30% in high yield muni debt obligations. The ETF maintains a weighted average portfolio duration of two to eight years, providing more credit and duration risk flexibility. This allows the ETF to allocate across credit qualities, maturities, sectors, and states based on the portfolio management team's assessment of attractive opportunities. PMIO has a net expense ratio of 0.25% [1].

Both ETFs are subadvised by PGIM Fixed Income, a top-10 U.S. active fixed income manager with $821 billion in assets under management. Stuart Parker, president and CEO of PGIM Investments, stated, "These new products allow ETF investors to tap into PGIM Fixed Income’s muni expertise." Jason Appleson, PGIM Fixed Income head of Municipal Bonds and co-portfolio manager of the new ETFs, commented, "These new products allow ETF investors to tap into PGIM Fixed Income’s muni expertise. The PGIM Ultra Short Municipal Bond ETF (PUSH) is ideal for investors looking to deploy cash into a more conservative strategy while benefiting from tax efficiencies provided by the municipal markets. The PGIM Municipal Income Opportunities ETF (PMIO) is designed to have more credit and duration risk flexibility, allowing us to select opportunities within the muni market." [1]

Investors should consider these new ETFs alongside other municipal bond ETFs, such as the Vanguard Core Tax-Exempt Bond ETF (VCRM), which offers a tax-advantaged 3.6% dividend yield. However, the yield of VCRM is relatively low compared to other options, and investors should explore alternatives to find the best fit for their investment goals and risk tolerance [2].

References:
[1] https://www.pgim.com/hk/en/borrower/about-us/newsroom/press-releases/pgim-introduces-two-active-muni-etfs
[2] https://www.vanguard.com/mutual-funds/profile/vcrm