Vanguard High-Yield Tax-Exempt Fund (VWALX)'s historical income returns

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ma21n2
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Vanguard High-Yield Tax-Exempt Fund (VWALX)'s historical income returns

Post by ma21n2 » Thu May 21, 2020 7:32 pm

Right now, Vanguard High-Yield Tax-Exempt Fund Admiral Shares (VWALX) has SEC yield of 3.21%. In comparison, Vanguard Long-Term Tax-Exempt Fund Admiral Shares (VWLUX) has SEC yield of 2.34%. This makes sense -- duration is about the same for both funds, but VWALX has a higher credit risk so it has a 0.87% higher yield. A year ago on 5/2/2019, it was 2.94% vs. 2.54%, so 0.4% higher back then.

I was surprised when I looked at Historical Income returns from 2005 - 2019. VWALX's income return was about 0.3% higher than VWLUX's from 2017-2019. But if you look at 2005-2016, the difference isn't that much. In 2005, VWALX's income return was 0.1% more (4.7% vs. 4.60%). In 2006, VWALX's income was actually 0.03% less. In 2007, VWALX's income return was only 0.02% higher.

Back in 2005-2007 timeframe, was the SEC yield for VWALX almost the same as VWLUX's? If SEC yield were the same, why would anyone buy VWALX over VWLUX? Over the past year, VWALX had a noticeably higher SEC yield compared to VWLUX (and its California counterpart VCLAX), so I was a little surprised to see that VWALX's performance over the past 10 years (both income returns and overall returns) wasn't really all that much better than VWLUX or VCLAX's performance.

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grabiner
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Re: Vanguard High-Yield Tax-Exempt Fund (VWALX)'s historical income returns

Post by grabiner » Thu May 21, 2020 8:45 pm

Vanguard High-Yield Tax-Exempt historically had a somewhat shorter duration than Long-Term Tax-Exempt; Morningstar sometimes put it in the intermediate-term category. Now, part of the yield gap is that the high-yield fund has a longer duration (7.1 years versus 6.6).
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gjlynch17
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Re: Vanguard High-Yield Tax-Exempt Fund (VWALX)'s historical income returns

Post by gjlynch17 » Thu May 21, 2020 9:31 pm

grabiner wrote:
Thu May 21, 2020 8:45 pm
Vanguard High-Yield Tax-Exempt historically had a somewhat shorter duration than Long-Term Tax-Exempt; Morningstar sometimes put it in the intermediate-term category. Now, part of the yield gap is that the high-yield fund has a longer duration (7.1 years versus 6.6).
Other reasons for the higher yield on VWALX are (i) the lower credit rating (but still 85%+ Investment grade) and (ii) the fact that a portion of VWALX is subject to Alternative Minimum Taxes (AMT) (currently 18.2%).

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