Vanguard to offer its first muni-bond ETF

Vanguard Group Inc. plans to offer its first exchange-traded fund focused on the $3.6 trillion U.S. municipal-bond market. Valley Forge, Pa.-based Vanguard, which oversees about $140 billion in municipal debt, filed a registration statement with the Securities and Exchange Commission for the tax-exempt index fund, according to a news release. The company expects the fund to be available by the end of June. Adam Ferguson, who currently manages muni funds, will run the new offering. Its benchmark, the S&P National AMT-Free Municipal Bond Index, is the same as the $4.2 billion iShares National AMT-Free Muni Bond ETF. MUB, as it is called after its ticker symbol, is the largest such fund tracking state and city bonds. “For investors in high tax brackets, a high-quality, broadly diversified municipal bond fund or ETF can provide tax advantages as well as diversification from the risks of the equity market,” Vanguard Chief Executive Officer Bill McNabb said in a statement. The appeal of tax-exempt interest on munis has grown for high earners, who last year faced the highest top tax bracket since 2000. Including a 3.8% tax on the investment income of top earners resulting from the 2010 Patient Protection and Affordable Care Act, the top federal rate is 43.4%. The 1.99% yield on AAA 10-year munis is equivalent to a taxable rate of 3.52%.