Looking for options to reduce your portfolio’s overall tax bill? Even in an uncertain 2025, many investors will have some serious gains to pay for. The S&P 500, at time of writing, has risen more than 14% YTD, for example, while many international and tech equities strategies have seen even bigger gains. Tax-exempt ETF strategies can help reduce the total tax bill by providing a tax-exempt vehicle for assets.
See more: Tax-Loss Harvesting in 2025: 3 Tips
The American Century Diversified Municipal Bond ETF (TAXF ), provides a standout tax exempt ETF option. The fund charges a 27 basis point (bps) fee for its approach, actively investing to not only reduce taxes, but also to boost income. The strategy does so by investing in both high yield muni and investment grade bonds. The fund, launched in 2018, allocates up to 35% of its portfolio to “riskier” securities, depending on market conditions.
It’s that flexibility that can help TAXF perform in that top tier of tax-exempt ETF strategies. Passive tax reduction strategies can struggle where active ETFs succeed when trying to track their assigned indexes. Should certain bonds be called early or default, passive funds can struggle to adapt quickly enough to replace them. Actively managed ETFs, by contrast, can quickly add bonds in to fill holes.
What’s more, active ETFs can also provide a deeper understanding of individual issuers’ outlooks. By leaning on fundamental research and metrics like cash flow and profitability, those ETFs can identify issuers poised to do well even in riskier areas.
TAXF has taken its approach and returned 4.1% YTD, per ETF Database data. That outperformed its ETF Database Category average in that time. What’s more, the fund also offered some appealing yields. The fund has produced a 4.2% yield to maturity as of October 31st this year per American Century Investments data.
Taken together, a tax exempt ETF like TAXF can offer two key benefits. Yes, it can reduce tax exposure for a portfolio. At the same time, it can also offer an upgrade on other, passive muni bond funds. Looking to the end of the year, it’s one to watch in the overall tax exempt ETF space.
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