SMB vs VTES: Which Is the Best Municipal Bond ETF to Buy Right Now?

The VanEck Short Muni ETF (NYSEMKT:SMB) and the Vanguard Short-Term Tax-Exempt Bond ETF (NYSEMKT:VTES) both provide tax-efficient income through short-duration municipal bonds, though they differ in cost and yield.

Investors seeking federal tax-exempt income while minimizing interest-rate sensitivity often gravitate toward short-duration municipal bond funds. These funds target investment-grade debt with short maturities to provide stability. This analysis examines how the Vanguard and VanEck offerings compare in terms of assets under management (AUM), fund age, and total costs.

Snapshot (cost & size)

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 fund is the more affordable choice with a 0.05% expense ratio, while the VanEck fund charges a slightly higher 0.07% expense ratio. Over 12 months, the VanEck fund provided a marginally higher payout, with a trailing yield of 2.80% compared to the 2.70% yield delivered by the Vanguard ETF.

Performance & risk comparison

What's inside

The VanEck Short Muni ETF strives to mirror the ICE Short AMT-Free Broad National Municipal Index, focusing on U.S. dollar-denominated bonds with short durations. It manages 326 holdings. Its largest positions include the Indiana Finance Authority at 1.07% and the New York City Transitional Finance Authority at 1.06%. It also maintains a 1.43% position in cash and other assets.

The fund was launched in 2008. VanEck Short Muni ETF has paid $0.48 per share over the trailing 12 months, which, on its recent ~$17.28 share price, works out to a 2.80% yield.

The Vanguard Short-Term Tax-Exempt Bond ETF follows the S&P 0-7 Year National AMT-Free Municipal Bond Index. It uses a sampling methodology to mirror the benchmark, resulting in a much larger portfolio of 3,373 holdings. The fund is highly diversified; no single position exceeds 0.49% of the portfolio. Its strategy ensures that at least 80% of assets are exempt from federal income taxes and the federal alternative minimum tax.

The fund was launched in 2023. Vanguard Short-Term Tax-Exempt Bond ETF has paid $2.76 per share over the trailing 12 months, which, on its recent ~$101.02 share price, works out to a 2.70% yield.

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What does this mean for investors?

These municipal bond funds are solid options for conservative investors looking to boost their passive income in 2026. Both funds focus on short- to intermediate-term bonds, making them relatively immune to interest rate swings. However, there are differences to consider.

SMB has an average effective duration of 2.38 years, while VTES is slightly longer duration at 2.6 years. This makes VTES marginally more sensitive to interest rate fluctuations. If interest rates fall from current levels, VTES may deliver better returns over SMB.

Another consideration is VTES diversification. It has thousands of holdings, which greatly diminishes single-issuer risk. Likewise, VTES has far more assets under management, providing greater liquidity than SMB.

Both are quality muni funds, but investors interested in maximizing returns from a potential drop in interest rates may prefer VTES for its higher average duration, among other factors.

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.