In the increasingly crowded ETF market, there is a new player trying to make its mark in the municipal funds space. The IR+M Tax-Aware Short Duration ETF (TAXX) was launched less than a month ago by BondBloxx’s Joanna Gallegos. According to Gallegos, the focus of this new ETF is to highlight the importance of looking beyond traditional municipal bond portfolios and considering the relative value of after-tax income in the current market environment.
The Opportunity in Actively Managed Municipal Bond ETFs
Gallegos believes that actively managed municipal bond exchange-traded funds present a unique income-generating opportunity, especially in a high rate environment. Despite the possibility of the Federal Reserve cutting interest rates, she is confident in the ability of TAXX to deliver healthy returns to investors. With almost 62% of its holdings in municipal bonds, TAXX provides exposure to various states such as Illinois, Pennsylvania, New Jersey, New York, and Alabama. Additionally, the ETF includes corporate and securitized bonds in its portfolio, offering a mixed-bond approach that provides a wider opportunity to increase after-tax total returns.
According to FactSet, the fund is described as “tax efficient” as it balances strong after-tax income opportunities with capital preservation through both municipal and taxable short-duration fixed income securities. Gallegos highlights the current tax-equivalent yield of the portfolio, which stands close to 6%. This is particularly attractive for investors looking to maximize after-tax returns in the current tax environment. With a yield of 5.88%, TAXX presents itself as a compelling option for investors seeking tax-efficient income opportunities.
Since its launch on March 14, TAXX has seen a slight decline of 0.2% as of Friday. Despite this minor setback, Gallegos remains optimistic about the future performance of the ETF. As investors continue to navigate the complexities of the market environment, the tax-aware approach of TAXX could prove to be a strategic investment choice for those looking to enhance their after-tax returns.
The rise of tax-aware short duration ETFs like TAXX reflects a growing trend in the municipal funds market. With a focus on after-tax income opportunities and tax efficiency, these ETFs are reshaping the way investors approach municipal bond portfolios. As the market dynamics continue to evolve, it will be interesting to see how TAXX and similar ETFs fare in delivering value to investors in the long run.
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