I chose to use the Vanguard muni funds instead of a bond ladder for the following reasons:
1) I value diversification far more than Larry. Just because the default statistics on AAA bonds are great doesn't mean that will be the case in the future. If you have a ladder, a single default is a disaster. My crystal ball is always cloudy. I never think that the unlikely is impossible.
2) A highly diversified fund can include lower (not low) credit quality bonds which should lead to a higher long term expected return.
3) Most independent bond managers do not have publicly available track records. All this talk about buying bonds the same as the big boys if great, but you can't independently verify it. Anything you could want to know about a fund is online. Lots of smart people analyze what they do.
4) Independent advisors don't do this for free. They may not charge you to manage your bond portfolio but they do charge you for their advisory services. That has more value to some than others. It's hard to beat the price of the admiral shares at Vanguard.
5) There is ample opportunity to take tax losses at the fund level, especially if you track things on a tax lot basis. For the investor, a bond ladder has trading costs to rebalance, a fund does not. Advisors can at times offset those costs by swapping bonds between clients, but not always. Of course all of this tax loss harvesting stuff is simply theory until we have a period where interest rates actually go up
6) Partial liquidations of a fund have no effect on the composition of your bond portfolio. Selling a bond in a ladder can change things. You'll have more consistent risk characteristics (things like duration) in a fund.
7) It's far simple to reinvest dividends in a fund than in a ladder.
8) There is far more institutional stability in a firm like Vanguard or DFA than any independent advisor.
9) I'm giving up "control" over the composition of my bond portfolio to a manager in either case (which is good because I find looking at individual bonds dreadfully dull). I'd rather do that at Vanguard where I trust the culture will maintain a consistent approach over decades that at a smaller shop where the people doing this in 5 years may be different than the ones today and the quality control is not the same.
Reasonable people can differ on which way to go. At the end of the day, my bet is there will be no impact on my portfolio whichever way I decide to go. If that is the case, keep it simple. Funds are simple. Ladders are not.