Vanguard Short-Term Corporate Bond ETF vs. VanEck Short Muni ETF: Which Is the Better Buy?

Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH) and VanEck Short Muni ETF (NYSEMKT:SMB) both target short-duration bonds, but VCSH emphasizes investment-grade corporates and a higher yield, while SMB provides tax-exempt municipal exposure with a broader portfolio.

Both funds aim to limit interest rate risk by focusing on short-term debt, but their approaches and appeal differ. Vanguard Short-Term Corporate Bond ETF is designed for those seeking income from high-quality U.S. corporate bonds, while VanEck Short Muni ETF delivers access to a wide swath of short-term municipal bonds, appealing to investors interested in tax-exempt income.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

While both funds are low-cost, VCSH is slightly more affordable with a 0.03% expense ratio versus 0.07% for SMB, and it currently delivers a higher yield, which may appeal to those prioritizing income.

Performance & risk comparison

What's inside

VanEck Short Muni ETF tracks the performance of short-term, tax-exempt municipal bonds, holding 336 different securities as of its most recent data. Top exposures include California Community Choice Financing A (13013JAP1) and State of California (13063DLG1), with the portfolio entirely in cash and other assets for sector allocation. The fund has been operating for nearly 18 years, giving it a long track record.

In contrast, Vanguard Short-Term Corporate Bond ETF focuses on investment-grade corporate bonds, with its sector exposure also listed as 100% cash and others. Its largest positions include notes from Bank of America and CVS Health. VCSH does not introduce additional quirks or non-standard features. The portfolio holds 2,715 bonds.

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What this means for investors

These are both established short-term ETFs from excellent fund managers. Each of the two funds has a track record of more than 15 years.

While there are key differences between the two ETFs, both generally serve the same role in a well-diversified portfolio. They each offer capital preservation and stability in a portfolio, and they typically provide ballast when stocks are volatile. In addition, they generate reliable income and are highly liquid, with their short time horizons. Further, they are also less sensitive to interest rate changes than longer-term bonds due to their short durations.

Often, these types of short-term bond ETFs are used as a substitute for cash or money markets, generally offering higher returns than those instruments.

While either of these ETFs would be a suitable choice for an investor seeking these characteristics, the Vanguard Short-Term Corporate Bond ETF looks like the better option, with a lower expense ratio and consistently higher returns over the one-, three-, five-, and 10-year periods.

Bank of America is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.