As 2024 approaches an end, many investors are looking to refresh their portfolios. With markets up majorly this year, taxes loom as a key factor for consideration. While tax relief may be on the horizon, in the near and medium terms, investors may want to consider shifting their investments into more tax-friendly assets. One way to limit ETF tax impacts, then, may be looking to municipal bond funds like the muni bond ETF TAXF.
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The American Century Diversified Municipal Bond ETF (TAXF ) actively invests in both investment-grade and high yield bonds. The strategy charges 29 basis points (bps) to invest therein, a relatively low fee for active fixed income ETFs. The focus on municipal bonds could help not only reduce taxes, given muni bonds’ frequent status as exempt from certain taxes, but also boost income.
Look to Limit Tax Impacts in TAXF
Muni bonds, whether issued by Federal, state, or local governments, offer current income via appealing coupons. By investing up to 35% of its assets in high yield or riskier muni bonds, the fund can create an overall attractive portfolio. That approach has helped the muni bond ETF offer a 4.1% yield to maturity as of October 31st per American Century Investments data. What’s more, the fund has returned 10.56% over the last year on an annualized basis. That beat the fund’s benchmark in that time by more than 1%.
Looking at YCharts, the fund has outperformed the Bloomberg Municipal Bond index. The strategy recently saw its AUM level rise above $500 million for the first time, too, suggesting growing interest in ETF tax impacts via a muni bond ETF. For those looking to either move out of cash or reassess their portfolios overall, TAXF could intrigue as a tax bill reduction play.
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