Many investors may still be making end of year investment decisions, whether to reduce tax impacts or to shift fixed income allocations for the new year. More than ever, ETFs offer tools to meet those goals, with an ever-increasing roster of strategies therein. Active and tax and income ETFs, including funds like TAXF and MUSI, stand out from that group and could be worth a look to get a jumpstart in the new year.
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The American Century Diversified Municipal Bond ETF (TAXF ) takes an active approach to muni bonds. For a 27 basis point (bps) fee, the fund looks to boost investor income while also reducing overall tax burden. The tax ETF does so by focusing on tax-exempt municipal bonds, largely issued by the Federal government.
TAXF looks for a bit more yield via riskier muni bonds, as well. The fund allocates just over a third of its holdings to those riskier munis to meet that goal. Its active approach helps its managers scrutinize bond issuers more closely than passive alternatives can.
Together, the fund has returned 4.4% YTD according to ETF Database data. It has beaten its ETF Database Category average in that time based on that performance. The fund provided a 3.6% 12-month distribution rate as of November 30, per American Century Investments data.
For those who want to lean more into income ETFs, however, a strategy like MUSI may appeal. The American Century Multisector Income ETF (MUSI ) charges a 37 bps fee to actively invest across the fixed income spectrum.
Specifically, the fund looks for a high level of current income via segments as varied as bank loans, high yield, and emerging markets debt. Its remit is so wide that it also includes other income-producing investments like preferred stock and convertible securities as needed.
That has helped MUSI return 8.5% YTD, also beating its ETF Database Category average. The fund has provided a 5.8% 12-month distribution rate as of November 30, as well, indicating that it is meeting its goal of providing strong income to investors.
Overall, the duo of tax and income ETFs could provide some solid options in uncertain times. Whether investors want to reduce their tax bills in the near and medium term, or just add some income ballast, TAXF and MUSI may be worth considering.
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