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Hunting for Yield? Target These 3 Municipal Bond Funds

Investors' rush to bail munibonds is creating some values

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Vanguard High-Yield Tax Exempt

Vanguard mutual funds 401(k)SEC Yield: 3.9%

Vanguard High-Yield Tax Exempt (VWAHX) is not exactly what its name would imply. This municipal bond fund invests primarily in munibonds that have an average credit quality of Baa or higher.

Some investors see the words “high yield” and think “junk bonds,” which is not the case at all. Strong evaluation of risk has helped this fund offer compelling yield over time paired with manageable risk. Average maturity of the portfolio’s municipal bonds recently stood at 9.4 years with a duration of 7.3 years.

Vanguard’s fund currently offers an SEC yield of 3.9% (but, as mentioned before, a 4.3% yield based on last month’s distribution). The increase in yield has been brought about by a slight increase in the fund’s monthly distribution paired with declining bond prices.

The fund is down 3.7% YTD but has returned an annualized 4.5% during the past 10 years, according to Morningstar.

VWAHX currently has $6.8 billion in assets. Minimum investment is $3,000, and expenses are a low 0.2%, or $20 for every $10,000 invested.

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