BAB vs VTEB

BABBInvesco Taxable Municipal Bond ETF

VTEBAVanguard Tax-Exempt Bond ETF

In short

BAB Munis without the tax break. BAB has owned taxable municipal debt since 2009, the Build America Bonds corner of the market, and pays monthly income the IRS treats like any other taxable coupon.

VTEB Vanguard's national muni index fund, running since 2015 at three basis points, a tenth of what the typical muni ETF charges. Its benchmark screens for investment-grade bonds whose income is exempt from federal tax and the AMT.

Stated mandate

BAB The Fund normally invests at least 80% of its total assets in securities comprising the ICE BofAML US Taxable Municipal Securities Plus Index. It uses representative sampling rather than purchasing every index security.

VTEB VTEB seeks to track an index measuring the investment-grade segment of the U.S. municipal bond market. It uses passive sampling to approximate the index and generally invests in federally tax-exempt municipal securities.

Why people hold it

• BAB Launched in 2009, the same year Congress created Build America Bonds, and still a billion-dollar fund in a crowded muni aisle.wikipedia.org
• Costs 0.28% a year, under the 0.30% median for its muni bond peer group.
• Spreads across roughly 1,900 bonds, sampling the ICE BofA US Taxable Municipal Securities Plus Index rather than buying every piece of it.invesco.com
• Pays monthly, and changes hands often enough to handle ordinary-size orders.

• VTEB Three basis points a year against a 0.30% muni-ETF median. On tax-exempt bonds, where coupons are modest, that fee gap is a real slice of the payout.
• The index holds only investment-grade munis whose interest is exempt from federal income tax and the alternative minimum tax, so the income carries no AMT surprise.vanguard.com
• A multi-billion-dollar fund and one of the most heavily traded in the muni category, which tends to show up as tight bid-ask spreads. Income is paid monthly.
• It has tracked its benchmark closely and sits among the strongest implementations in a crowded muni bond peer group.

Worth knowing

• BAB Taxable is in the name: interest here is federally taxable, unlike the tax-free coupons most muni funds hand out.sifma.org
• Cheap against muni peers, not against the giants: broad tax-exempt funds like VTEB and SCMB charge 0.03%.
• No new Build America Bonds since the program lapsed at the end of 2010, so the index casts wider, across taxable municipal securities generally.sifma.org

• VTEB Federal exemption, not blanket coverage. Income can still be taxable in your home state, which is why single-state funds like NYF exist alongside it.vanguard.com
• Credit quality is investment grade, so rates are the main swing factor: when muni yields rise, bond prices and the fund's share price fall.vanguard.com
• Sampling, not full replication. The fund owns a representative slice of a very large index rather than every bond in it.vanguard.com

Full BAB profile⁠

Full VTEB profile⁠