TAXF vs VTEB

TAXFAAmerican Century Diversified Municipal Bond ETF

VTEBAVanguard Tax-Exempt Bond ETF

In short

TAXF Most muni ETFs just track an index of investment-grade paper. TAXF is actively run and can swing 5% to 35% of the book into high-yield and unrated munis, inside a 3 to 8 year duration band, for 0.25% a year.

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

TAXF Seeks current income exempt from federal income tax through an actively managed portfolio of municipal bonds spanning investment-grade and high-yield quality levels.

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

• TAXF Active in a category built on index trackers: managers set the investment-grade versus high-yield mix, with 5% to 35% earmarked for below-investment-grade and unrated munis.americancentury.comamericancentury.com 2
• Guardrails travel with the flexibility: a stated 3 to 8 year duration range to temper rate swings, spread across roughly 800 bonds.americancentury.com
• Pays monthly, and the income it targets is exempt from federal income tax.
• Trading since 2018, and it sits in the upper tier of a 60-plus fund muni bond group on our review.

• 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

• TAXF At 0.25% the fee is near the category median, but the big index trackers undercut it badly: VTEB and SCMB at 0.03%, MUB at 0.05%. You are paying for the credit calls.
• The extra income comes from high-yield and unrated munis, which is also where default and liquidity risk sit. Up to 35% of the portfolio can live there.americancentury.com
• Not one of the category's giants by assets or daily volume, so spreads and order size are worth a look before you trade.

• 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 TAXF profile⁠

Full VTEB profile⁠