With October almost over, just a handful of weeks remain before the end of the tax year. That has many investors looking at their portfolios for solutions to reduce cap gains payments. Especially at a time when a shifting rate outlook will impact fixed income, segments like municipal bonds could appeal. The challenge, then, is finding the right wrapper for a muni bond ETF. Active ETFs offer a wide variety of options.
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Why municipal bonds now? Principally, tax-exempt bonds can make for a solid landing pad for fixed income assets. Certain bond segments may be losing appeal as rates fall, with municipal bonds an intriguing alternative. That can reduce the total tax bill investors may face, especially important should 2025 end with strong overall stock market performance once again.
Not only do municipal bonds provide that tax bill reduction, but they can also provide competitive yields of their own in the right vehicle. Active ETFs can get the most out of the category while also offering that tax exemption. The T. Rowe Price Intermediate Municipal Income ETF (TAXE) could provide a strong option to consider.
The fund charges a 24 basis point fee for its approach. TAXE actively invests in municipal bonds exempt from Federal taxes that can also provide a high level of current income. Its managers are empowered to invest across credit quality levels within the intermediate maturity space.
TAXE leans on T. Rowe Price’s fundamental research capabilities to get the most out of active. Where a passive municipal bond ETF would have to tightly follow an index, TAXE can find those opportunities to outperform. The fund emphasizes its managers’ outlook on interest rates and economic conditions as well as prices and yields. For example, its managers can consider some selective exposure to municipal junk bonds to boost yields at their discretion, balancing risk and output.
Together, that approach has helped the fund return 5.1% YTD, according to ETF Database data. What’s more, it also provided a 4.44% current yield as of September 30. For those looking to refresh their bond portfolios, municipal bonds in an active wrapper may intrigue.
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