PZA vs VTEB: Which ETF Is Better in 2026?
A metric-by-metric comparison of Invesco National AMT-Free Municipal Bond ETF (PZA) and Vanguard Tax-Exempt Bond Index Fund ETF Shares (VTEB) — both Municipal Bonds funds — using ETFValuer's daily-updated rankings.
Educational content — not financial advice. Data as of July 25, 2026. ~5 minute read.
The Verdict
PZA and VTEB compete directly — both are Municipal Bonds funds chasing the same job in a portfolio. That makes this a genuine either/or: the index each tracks, what it costs, and how it has handled drawdowns are what separate them, not the broad exposure they give you.
On ETFValuer's overall model — which blends return, risk-adjusted performance, cost, drawdown, size and volatility — VTEB scores higher: 63.7 (Grade C) versus 60.3 for PZA. That doesn't make PZA a bad fund; it means VTEB currently edges it out on this specific mix of factors. Read the metric-by-metric breakdown below before deciding which matters more for your own portfolio.
Head-to-Head: Every Metric
| PZA | VTEB | |
|---|---|---|
| Category | Municipal Bonds | Municipal Bonds |
| Expense ratio | 0.28% | 0.03% |
| Fund size (AUM) | $4.3B | $48.8B |
| Dividend yield | 3.64% | 3.34% |
| 1-year return | +8.25% | +5.72% |
| 3-year return | +7.42% | +8.96% |
| Volatility | 4.22% | 2.79% |
| Max drawdown | -7.81% | -5.51% |
| Sharpe ratio | 0.77 | 0.26 |
| ETFValuer score | 60.3 | 63.7 |
| Grade | C | C |
| Overall rank | #243 | #186 |
Bold marks the better value in each row. "Better" is directional only (e.g. lower cost, higher return) — it isn't a recommendation by itself. See the full methodology.
Cost
VTEB is the cheaper fund, charging 0.03% a year versus 0.28% for PZA — a gap of 0.25 percentage points (about $25.00/year on a $10,000 position) that compounds meaningfully over a multi-decade holding period. See the ETF Fee Calculator for the exact dollar impact at your investment size and horizon.
What PZA's Fees Cost You
PZA charges an expense ratio of 0.28% a year, deducted automatically from the fund's value. Small percentages compound into real money — adjust the figures below to see the impact on your own numbers.
Assumes a constant gross return and no additional contributions — a simplification, but it isolates exactly what the expense ratio costs. Try the full fee calculator to model contributions and compare any two funds.
Performance & Risk
Over the trailing 3 years, VTEB returned +8.96% versus +7.42% for PZA — a gap of about 1.5 percentage points. On risk, VTEB has held up better historically, with a shallower max drawdown (-5.51% vs. -7.81%). PZA currently has the better risk-adjusted return (Sharpe ratio of 0.77 vs. 0.26), meaning it delivered more return per unit of volatility taken on.
How Closely Do They Track Each Other?
Over the last 3.0 years of daily returns (752 shared trading days), PZA and VTEB show a strong correlation of 0.897 — clearly related, with room to diverge. There is some genuine differentiation here, but not enough to call these complementary holdings. Pairing them mostly concentrates risk rather than spreading it.
| Measure | Value | What it means |
|---|---|---|
| Daily return correlation | 0.897 | Strong — clearly related, with room to diverge |
| R-squared | 80.4% | 80.4% of PZA's daily moves are explained by VTEB's |
| Tracking error (annualised) | 2.93% | Typical yearly spread between the two funds' returns |
| Annualised return over 3.0y | PZA +2.27% · VTEB +2.74% | VTEB ahead by 0.47 points a year |
Correlation alone understates how far these can drift. Across every rolling 12-month window in the period, PZA finished as much as +3.4 points ahead of VTEB at the best extreme and -4.6 points at the worst — a 8.0-point spread between the best and worst year of relative performance. Two funds can correlate tightly day to day and still deliver very different outcomes over any single year you happen to hold them.
Calculated from daily total returns over the trailing 3-year window, recomputed every day this site refreshes. Correlation of 1.00 means the two funds moved in lockstep; 0.00 means their daily moves were unrelated.
Holdings Overlap
PZA and VTEB hold 1 of the same companies among their top 10 positions. Those shared names make up 0.1% of PZA and 0.1% of VTEB. That's modest duplication — the funds are mostly distinct at the top, so holding both can still add diversification.
| Shared Holding | PZA Weight | VTEB Weight |
|---|---|---|
| University of California | 0.12% | 0.12% |
Compares the top 10 reported holdings from each fund's most recent SEC N-PORT-P filing, so it understates total overlap — funds tracking similar indexes overlap far more deeply than the top 10 alone can show. Search any company across all tracked funds with the Stock Overlap tool.
Which One Should You Pick?
Lean PZA if…
- You care about return per unit of risk — its Sharpe ratio of 0.77 beats 0.26
Lean VTEB if…
- You want the lower running cost — 0.03% vs 0.28%, about $25 a year less on a $10,000 position
- It has been the calmer ride (2.8% volatility vs 4.2%) with a shallower worst-case fall (-5.5% vs -7.8%)
- You weight recent results heavily — it returned 9.0% over 3 years against 7.4%
- You want the deeper, more liquid market ($49B in assets vs $4B)
Whichever you pick, holding both at full weight is usually the wrong answer — see the overlap and correlation sections above.
Frequently Asked Questions
Is PZA or VTEB better?
On ETFValuer's overall model — which blends return, risk-adjusted performance, cost, drawdown, size and volatility — VTEB scores higher: 63.7 (Grade C) versus 60.3 for PZA. That doesn't make PZA a bad fund; it means VTEB currently edges it out on this specific mix of factors. Read the metric-by-metric breakdown below before deciding which matters more for your own portfolio.
Which has the lower expense ratio, PZA or VTEB?
VTEB currently has the lower expense ratio (0.03% vs. 0.28%).
Can I hold both PZA and VTEB?
You can, though the benefit is limited. At a correlation of 0.90, PZA and VTEB fall together far more often than not, so owning both adds complexity and a second expense ratio without much real diversification. Most investors are better served picking one.
Go deeper on either fund
Full daily-updated metrics, holdings context, and category peers.