The $3.2 billion Vanguard Insured Long-Term Tax-Exempt Fund is being liquidated and folded into the $2.8 billion Vanguard Long-Term Tax-Exempt Fund.


Vanguard Chief Investment Officer Gus Sauter explained: “The municipal bond market has changed to a point where insured bonds provide little, if any, additional benefit over high-quality uninsured credits. We concluded that a fund focused solely on insured bonds no longer provides tangible benefits. Shareholders will be better served by merging the two portfolios to create a single, well-diversified, high-quality fund.”


Vanguard noted that because the credit rating agencies have downgraded six of the nine major bond insurers in the U.S. from AAA, the price of most bonds is discounting insurance on bonds. Sauter added that Vanguard’s own credit research team is assessing the crediworthiness of the firm’s municipal bond investments.

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