Understanding the Vanguard Tax-Exempt Bond Index Fund ETF (VTEB)

What this ETF is trying to do

The VTEB is an exchange-traded fund (ETF) that focuses on tax-exempt bonds. Investors often look at these types of funds to find ways to earn income that may have different tax rules compared to other investments.

What the numbers show

When looking at an ETF, it is important to understand two different types of returns: price return and total return.

• Price Return: This only tracks how much the share price itself has changed.

• Total Return: This includes both the change in share price *and* any cash distributions (dividends) paid out to investors.

For VTEB, the numbers show different trends depending on how much time has passed:

• Year-to-Date (YTD): The price return is approximately -5.89%, while the total return is approximately -3.45%.

• One Year: The price return is approximately -5.38%, while the total return is approximately -2.11%.

• Three Years: The price return is nearly flat at -0.40%, but the total return is much higher at approximately 9.81%.

To visualize the price change, we can look at an estimated price from roughly one year ago, which was about $50.02. The current price is $47.33.

Income and distribution explanation

This ETF provides regular cash payments, known as distributions. The distribution yield is approximately 3.59%. These payments usually happen monthly, with the most common day for a payment being Monday. Over the last 12 months, the trailing distributions were approximately $1.70 per share.

It is important to remember that a distribution yield tells you how much cash was paid out relative to the price, but it is not the same thing as your total return.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases. While a falling share price does not always mean the NAV is dropping, we use an "erosion-risk score" to measure this risk.

VTEB has an erosion score of 75, which is labeled as "Mild price erosion." This is a measurement of risk and is not a "severe erosion-risk flag," which would indicate much higher concern.

Pros

• The fund has a history of providing monthly distributions.

• Over a three-year period, the total return was positive at approximately 9.81%, even though the share price itself was slightly down.

Cons

• The share price has seen a decline over the last year and year-to-date.

• The five-year total return is approximately -0.13%.

Beginner takeaway

When studying VTEB, notice the difference between the share price and the total return. While the price of a single share has gone down recently, the total return (which includes the cash paid out to you) tells a different story over longer periods. Always look at both numbers to get the full picture of how an ETF is performing.