A new ETF is looking to capture profits in the municipal fund space.
Joanna Gallegos of BondBloxx is behind the IR+M Tax-Aware Short Duration ETF (TAXX), which launched less than a month ago.
“When you think about municipal bond portfolios, you really want people to think beyond that and look at the relative value of after-tax income,” the company’s co-founder and COO told CNBC’s “ETF Edge” on Monday.
Gallegos sees actively managed municipal bond exchange-traded funds as an income-generating opportunity in a high-rate environment. He expects healthy returns even if the Federal Reserve starts cutting interest rates this year.
According to the website BondBloxx, nearly 62% of TAXX’s holdings are in municipal bonds. Its five largest state holdings as of Thursday were Illinois, Pennsylvania, New Jersey, New York and Alabama.
The ETF also includes exposure to corporate and securitized bonds. The firm says the fund’s blended bond approach presents a “broader opportunity” to increase after-tax total returns. FactSet describes the fund as “tax efficient,” balancing strong after-tax income opportunities with capital preserved through both municipal and taxable short-term fixed income securities.
“Right now, the portfolio’s tax-equivalent yield is close to 6%. If you look at it, it’s about 5.88,” Gallegos said. “It’s just the right year to think about taxes.”
On Friday, TAXX fell 0.2% from its March 14 launch date.
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