BSV vs. VTES: Which Vanguard Short-Term Bond Fund Is the Better Buy?
Key Points
Vanguard Short-Term Bond ETF offers a lower expense ratio and a higher trailing-12-month distribution yield than Vanguard Short-Term Tax-Exempt Bond ETF
Vanguard Short-Term Tax-Exempt Bond ETF targets income exempt from federal taxes and the alternative minimum tax whereas Vanguard Short-Term Bond ETF provides fully taxable income
Vanguard Short-Term Bond ETF is a much larger fund with a longer track record having launched in 2007 compared to the 2023 launch of Vanguard Short-Term Tax-Exempt Bond ETF
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Vanguard Short-Term Bond ETF (NYSEMKT:BSV) could appeal to investors seeking higher taxable yields and lower expenses, while the Vanguard Short-Term Tax-Exempt Bond ETF (NYSEMKT:VTES) focuses on tax-sensitive municipal income.
Both funds target the short end of the fixed-income spectrum, providing a haven for capital with lower interest-rate sensitivity than long-term bonds. While BSV casts a wider net across government and corporate debt, VTES focuses specifically on the municipal market to provide tax-efficient income.
Snapshot (cost & size)
| Metric | VTES | BSV |
|---|---|---|
| Issuer | Vanguard | Vanguard |
| Expense ratio | 0.05% | 0.03% |
| 1-yr return (as of June 12, 2026) | 3.3% | 3.6% |
| Dividend yield | 2.7% | 4.0% |
| Beta | 0.37 | 0.38 |
| AUM | $2.0B | $70.4B |
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. Dividend yield is the trailing-12-month distribution yield.
The Vanguard Short-Term Bond ETF is slightly more affordable with an expense ratio of 0.03%. It also offers a higher payout, with a distribution yield of 4.00% compared to 2.70% for the Vanguard Short-Term Tax-Exempt Bond ETF.
Performance & risk comparison
| Metric | VTES | BSV |
|---|---|---|
| Max drawdown (3 yr) | (1.8%) | (1.5%) |
| Growth of $1,000 over 3 years (total return) | $1,099 | $1,143 |
What's inside
The Vanguard Short-Term Bond ETF focuses on high-quality, investment-grade debt, including U.S. Treasury notes and corporate bonds with maturities between one and five years. It holds 30 securities, and its largest positions include U.S. Treasury Note/Bond 4.13% 05/31/2031, U.S. Treasury Note/Bond 3.50% 01/31/2028, and U.S. Treasury Note/Bond 4.00% 02/28/2030. The fund launched in 2007 and has a trailing-12-month dividend of $3.11 per share.
In contrast, the Vanguard Short-Term Tax-Exempt Bond ETF employs an ESG screen and tracks an index of municipal bonds with maturities up to seven years. The portfolio is much more diversified with 2,667 holdings, and its top positions include Vanguard Municipal Low Duration Fund 12/31/2049, Harris County Cultural Education Facilities Finance Corp 1.45% 12/01/2060, and New York City Transitional Finance Authority Future Tax Secured Revenue 5.00% 11/01/2029. The fund launched in 2023 and paid $2.78 per share over the trailing 12 months.
For more guidance on ETF investing, check out the full guide at this link.
Which bond fund should you buy?
These are solid Vanguard bond funds that offer low costs, high credit quality, and monthly distributions. These funds are designed for specific accounts, such as whether you will put them in an IRA or a taxable investment account.
BSV has delivered superior returns and offers a higher dividend yield, but that doesn’t account for taxes when held in a taxable brokerage account. However, BSV is better for a retirement account to remove the friction on returns of having to pay taxes on income.
Every investor has to consider their unique needs, but BSV will generally work better for investors wanting to boost their passive income in a retirement account, while VTES is a good option for extra income in a taxable brokerage account.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Bond Index Funds - Vanguard Short-Term Bond ETF. The Motley Fool has a disclosure policy.
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