Many investors have likely shifted their fixed income allocation since the live rate market returned. The rapid rate hikes introduced last year helped push inflation back down, with rate cuts now on the horizon. Those robust yields that have drawn investors back into fixed income, however, could be vulnerable to cuts. In that scenario, one particular active fixed income ETF could be ready to take a big leap forward.
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That fund, the American Century Diversified Municipal Bond ETF (TAXF), presents an appealing case. It actively invests for a 29 basis point fee. The active fixed income ETF combines both investment-grade and high yield muni bonds. It looks to do so to boost income while reducing tax exposure.
If yields from other fixed income types were to dip, then municipal, tax-free bonds could stand out. That’s because yields from more traditional bond types lose some value from tax payments.
Two other factors speak to the outlook for muni bonds in TAXF, too. Municipal bonds are having a good year following a tougher time in 2023. That momentum could carry into the Fall with rate cuts. While rate cuts would drop yields overall, the tax savings in muni bonds could see a growing number of muni securities stand out from the pack. TAXF’s active approach could help it combine the best muni bonds therein to craft an appealing portfolio.
The other factor involves the election. While much about markets wouldn’t change due to the election, tax rates are directly involved. If taxes go up, tax-free muni bonds stand out even more. Of course, if taxes remain at their current rates, that would have an impact, too.
Muni bonds can appeal to all types of investors, with those nearing retirement one class of investor that may be particularly interested. For those looking at their fixed income holdings, TAXF may be worth a closer look.
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