Some Vanguard fixed-income funds have consistently outperformed their benchmarks and provide multiple benefits to investors with their low fees and other characteristics: the Vanguard High-Yield Tax-Exempt Fund Investor Shares (VWAHX), the Vanguard High-Yield Corporate Fund Investor Shares (VWEHX) and the Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX). 

Key Takeaways

  • Vanguard offers a wealth of funds for any investor's appetite. The three funds in this article are some of the best in the fixed-income sector.
  • When considering fixed-income funds, the underlying index determines yield and risk exposure.
  • These funds only represent those offered by Vanguard and while there are funds offered by competitors with the same underlying index, they will most likely have higher expense ratios and possibly less liquidity,

Past Performance

Although historical performance is not indicative of future performance, investors should still take past performance against key benchmarks into consideration. Vanguard fixed-income fund outperformers provide exposure to various bonds, such as long-term tax-exempt municipal bonds and high-yield tax-exempt bonds.

These three Vanguard fixed-income funds have low to moderate risk-reward potential and have outperformed their benchmarks, respectively, over the past three years, five years and, in one case, over the past 10 years.

Vanguard High-Yield Tax-Exempt Fund Investor Shares (VWAHX)

The Vanguard High-Yield Tax-Exempt Fund Investor Shares is a municipal bond fund that seeks to provide a high, yet sustainable, level of income that is tax-exempt at the federal level. Under normal market conditions, the fund invests the lion's share of its total net assets in investment-grade municipal bonds determined by nationally recognized rating agencies.

The Vanguard High-Yield Tax-Exempt Fund's benchmark is the BloomBarc Municipal Bond Index, which includes most investment-grade tax-exempt bonds issued by municipalities.

There is a minimum initial investment of $3,000. Thereafter, investors are charged an annual net expense ratio of 0.17%, which is over 80% lower than the average ratio of municipal bond funds with similar holdings, according to Vanguard.

Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)

The Vanguard High-Yield Corporate Fund Investor Shares is a bond fund that seeks to provide a high level of income. The Vanguard High-Yield Corporate Fund is managed by the Wellington Management Company and requires a minimum investment of $3,000. The fund charges a low annual expense ratio of 0.23%, which is 77% lower than similar corporate bond funds, according to Vanguard.

Contrary to the tax-exempt fund above, the Vanguard High-Yield Corporate Fund invests the vast majority of its total net assets in corporate bonds that are rated below Baa by Moody's or have equivalent ratings by any independent bond rating agency. These are primarily high-risk, high-yield corporate bonds, also known as "junk bonds." The fund's approach seeks to provide consistent income while minimizing the loss of principal and defaults.

The fund's benchmark is the High-Yield Corporate Composite Index.

Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)

The Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares is a municipal bond fund that seeks to provide investors with a moderate, but sustainable level of federally tax-exempt income. The fund is managed by the Vanguard Fixed Income Group and charges an annual expense ratio of 0.17%, which is more than 75% lower than the average expense ratio of similar municipal bond funds, according to Vanguard. To invest in this fund, a minimum investment of $3,000 is required.

Under normal circumstances, the fund is expected to maintain a dollar-weighted average maturity between six and 12 years. However, the fund typically invests in investment-grade municipal bonds with a predictable duration profile between five and six years. Additionally, the fund is expected to invest at least 75% of its holdings in municipal bonds in the top three credit rating categories determined by nationally recognized rating organizations, such as Moody's or Standard and Poor's.

The fund's benchmark is the BloomBarc 1-15 Year Municipal Index.