(Bloomberg) -- Vanguard Group plans to offer its first exchange-traded fund focused on the $3.6 trillion U.S. municipal-bond market.
Valley Forge, Pennsylvania-based Vanguard, which oversees about $140 billion in municipal debt, filed a registration statement with the U.S. Securities and Exchange Commission for the tax-exempt index fund, according to a news release today. 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 the 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%.
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