SMB vs. VGSH: Is Tax-Free Income Better Than High Yield?
Key Points
SMB has a higher expense ratio and lower asset size than VGSH.
VGSH has a higher trailing 12-month yield.
Both funds focus on ultra-short bonds, but SMB targets tax-exempt municipal debt, which could appeal to investors in higher tax brackets.
- 10 stocks we like better than VanEck ETF Trust - VanEck Short Muni ETF ›
The VanEck Short Muni ETF (NYSEMKT:SMB) and the Vanguard Short-Term Treasury ETF (NASDAQ:VGSH) both offer low-cost, short-duration bond exposure. However, VGSH offers a higher yield, while SMB pays a lower yield but with tax advantages from municipal bonds.
Both funds aim to deliver safe income by investing in high-quality, short-term bonds. VGSH sticks to U.S. Treasury debt, prioritizing safety and liquidity, while SMB holds a diversified mix of short-term municipal bonds, appealing to those seeking tax-exempt income. This comparison highlights key differences in cost, returns, risk, and portfolio construction for investors considering these two options.
Snapshot (cost & size)
| Metric | VGSH | SMB |
|---|---|---|
| Issuer | Vanguard | VanEck |
| Expense ratio | 0.03% | 0.07% |
| 1-yr return (as of 2026-03-24) | 3.77% | 3.44% |
| Dividend yield | 3.96% | 2.69% |
| Beta | 0.25 | 0.34 |
| AUM | $32 billion | $303 million |
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months.
SMB charges a slightly higher expense ratio than VGSH, making VGSH the more affordable option. However, VGSH also offers a higher trailing yield, which may appeal to investors prioritizing current income over potential tax savings from municipal bonds.
Performance & risk comparison
| Metric | VGSH | SMB |
|---|---|---|
| Max drawdown (5 y) | (5.7%) | (7.5%) |
| Growth of $1,000 over 5 years | $1,090 | $1,058 |
What's inside
SMB tracks a portfolio of 330 short-term, investment-grade, tax-exempt municipal bonds, maintaining a focus on cash-equivalent and very short-duration debt. The fund’s largest holdings are California Community Choice Financing A, New York City Transitional Finance Auth, and State of California. With an 18-year track record, SMB may appeal to those seeking diversification across many issuers and potentially lower tax liability, depending on individual circumstances.
VGSH, in contrast, currently holds 91 U.S. Treasury securities, offering exposure exclusively to government-backed bonds and virtually eliminating credit risk. The fund’s largest positions are United States Treasury Note/Bond issues with varying maturities, and its portfolio is designed for maximum liquidity and stability. Unlike SMB, VGSH does not provide tax-exempt income, but its simplicity and scale may suit those seeking straightforward access to the short-term Treasury market.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
Investors looking for a solid short-term bond fund have solid options in SMB and VGSH. Vanguard is known for offering straightforward, low-cost funds, and VGSH certainly fits the bill. Its ultra-low expense ratio and massive size, with over $32 billion in net assets, will appeal to investors who care about liquidity and maximizing returns at minimal costs.
However, investors in higher tax brackets may find SMB a simpler option due to its tax-free income. The higher yield from VGSH may not be an advantage for those who pay higher tax rates.
Overall, VGSH is a more solid bond fund for most investors. Its greater asset size may lead to tighter spreads for trading, tilting the cost advantage more in its favor. Moreover, its 100% focus on U.S. Treasuries makes it a safer option than local and state issues.
Should you buy stock in VanEck ETF Trust - VanEck Short Muni ETF right now?
Before you buy stock in VanEck ETF Trust - VanEck Short Muni ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and VanEck ETF Trust - VanEck Short Muni ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $497,659!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,095,404!*
Now, it’s worth noting Stock Advisor’s total average return is 912% — a market-crushing outperformance compared to 185% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of March 26, 2026.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Recommended Articles
