A recent addition to the ETF market is attempting to capitalize on profits within the municipal funds space. Joanna Gallegos, from BondBloxx, has launched the IR+M Tax-Aware Short Duration ETF (TAXX) less than a month ago. This ETF is aiming to provide investors with a unique perspective on municipal bond portfolios and the potential for generating after-tax income.
Gallegos believes that actively managed municipal bond exchange-traded funds can offer income-generating opportunities, particularly in a high rate environment. Despite potential interest rate cuts by the Federal Reserve, she remains optimistic about the fund's performance. Nearly 62% of TAXX's holdings consist of municipal bonds, with the five largest muni holdings being from states like Illinois, Pennsylvania, New Jersey, New York, and Alabama. Additionally, the ETF includes exposure to corporate and securitized bonds, offering a diversified approach to enhance after-tax total returns.
According to FactSet, the fund is described as “tax efficient,” combining strong after-tax income potential with capital preservation through a mixture of municipal and taxable short-duration fixed income securities. Gallegos stated that the portfolio's tax-equivalent yield is currently close to 6%, emphasizing the importance of considering taxes in the investment process. Despite being down 0.2% since its launch on March 14, TAXX provides an intriguing option for investors seeking tax-aware opportunities.
As investors navigate through changing market conditions and potential rate adjustments by the Federal Reserve, an ETF like TAXX offers a distinctive approach to municipal bond investing. By focusing on after-tax income and utilizing a mixed-bond strategy, investors can potentially benefit from both income generation and tax efficiency. With the expertise of Gallegos and the team at BondBloxx behind TAXX, it presents a compelling option for those looking to enhance their investment portfolios in a tax-aware manner.
By considering the unique characteristics of this new ETF and the strategies employed by its managers, investors can gain valuable insights into the world of municipal bond investing and the potential for achieving strong after-tax returns. As the market continues to evolve, having access to innovative products like TAXX could prove beneficial in building a diversified and tax-efficient investment portfolio.