For investors looking to avoid underperformance, Vanguard Tax-Exempt Bond ETF (VTEB Quick QuoteVTEB - Free Report) is probably on radar now. The fund just touched a 52-week low and is down nearly 6.1% from its 52-week high price of $52.88/share.

But is more pain in store for this ETF? Let’s take a quick look at the fund and the near-term outlook on it to get a better idea on where it might be headed:

VTEB in Focus    

VTEB provides exposure to the investment-grade segment of the U.S. municipal bond market. The product has 2,118 bonds in its portfolio. The fund has 5.6 years of average duration entailing moderate interest rate risk. The product charges investors 12 basis points in fees (see: all Municipal Bond ETFs here).

Why the Move?

Municipal bonds have been one of the sufferers post U.S. elections on expectation of lower taxes, higher inflation and a December rate hike. Usually the interest income from munis is exempted from federal tax and sometimes even state taxes, making these a lucrative option for investors in the high tax bracket looking to reduce their tax liability.

More Pain Ahead?

Currently, VTEB has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. So it is hard to get a handle on its future returns one way or another. With the central bank likely to implement a rate hike, there is still some downside risk. Investors should therefore exercise caution and wait until the sector bottoms out before jumping into this ETF.

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