The municipal bond space has recently seen the arrival of a new ETF seeking to capitalize on potential profits. Joanna Gallegos, from BondBloxx, has taken the lead in the creation of the IR+M Tax-Aware Short Duration ETF (TAXX), a fund that was launched less than a month ago. Gallegos emphasizes the importance of looking beyond traditional municipal bond portfolios and focusing on the relative value of after-tax income in today’s market environment.
Gallegos views actively managed municipal bond exchange-traded funds as a promising avenue for income generation, especially in a high rate environment. She remains optimistic about the fund’s ability to deliver healthy returns even if there are potential interest rate cuts by the Federal Reserve later this year.
TAXX boasts a diversified portfolio, with nearly 62% of its holdings allocated to municipal bonds. As of the latest data, the fund’s top five muni holdings by state include Illinois, Pennsylvania, New Jersey, New York, and Alabama. In addition to municipal bonds, the ETF also provides exposure to corporate and securitized bonds, presenting investors with a broader opportunity to enhance after-tax total returns.
FactSet describes TAXX as “tax efficient,” highlighting its ability to balance strong after-tax income opportunities with capital preservation through a mix of municipal and taxable short-duration fixed income securities. Gallegos notes that the portfolio’s tax-equivalent yield currently stands at close to 6%, offering investors a competitive return of about 5.88%. In a year where tax considerations are paramount, this yield may prove to be attractive to income-focused investors.
Despite its recent launch date of March 14, TAXX has experienced a modest decline of 0.2% as of Friday. This early performance may be indicative of the challenges faced by new ETFs in establishing their footing in the market. However, investors should consider the long-term potential of a fund like TAXX, especially given its unique approach to maximizing returns through a tax-aware investment strategy.
The IR+M Tax-Aware Short Duration ETF (TAXX) introduces a compelling opportunity for investors looking to capitalize on the income potential of municipal bond investments. With a focus on after-tax total returns and a diversified portfolio mix, TAXX aims to provide investors with a competitive yield in today’s market environment. While early performance may be modest, the long-term success of TAXX will likely hinge on its ability to deliver consistent and tax-efficient returns to investors.