With the year drawing to a close, investors may be looking at opportunities to engage in tax-loss harvesting. By selling off some securities at a loss, investors and RIAs can mitigate clients’ tax bills for the year as a whole. Of course, sales return some amount of assets to the investor. That presents an opportunity to reinvest in ETFs, for example, which offer tax efficiencies compared to mutual funds.
See more: This Sleeper Active Fixed Income ETF Could Have Big Second Half
So, what kind of ETFs might appeal right now for those engaging in tax-loss harvesting? ETFs don’t just provide tax advantages thanks to their inherent attributes. Certain funds offer additional benefits within the wrapper that merit a closer look.
Fixed Income ETFs for Reinvesting Post Tax-Loss Harvesting
For example, the American Century Diversified Municipal Bond ETF (TAXF) actively invests in a mix of investment-grade and high-yield muni bonds while reducing taxes. For those facing particularly high tax bills, municipal bonds can really appeal given they are often exempt from Federal and, sometimes, state and local taxes. TAXF offers fixed income yield within that framework for 29 basis points (bps), a relatively low fee for active ETFs.
TAXF isn’t the only active ETF that provides a route into the municipal bond world. The Avantis Core Municipal Fixed Income ETF (AVMU) charges an even smaller fee of 15 bps compared to TAXF for its approach. Launched in 2020, AVMU looks to offer current income exempt from federal taxes via investment-grade muni bonds. That sets it apart from TAXF, but both look to limit tax exposure.
With the interest rate environment looking set to change in the near term, and taxes potentially changing with the U.S. election, an active ETF duo in fixed income could appeal. Tax-loss harvesting provides an opportunity not only to address losses this year, but to mitigate taxes in the future. For those looking at options therein, TAXF and AVMU may appeal.
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