On Tuesday, F/m Investments expanded its ETF roster by debuting two new funds. Both of these new ETFs were created in partnership with Compoundr LLC, and seek to address dividend tax drag.
The new F/m Compoundr U.S. Aggregate Bond ETF (CPAG) focuses on investment-grade bond exposure. Meanwhile, the F/m Compoundr U.S. High Yield ETF (CPHY) opts to focus on high yield bonds.
Rotating Around Dividends & Distributions
Despite their different investment focuses, both funds actually employ a similar strategy to maximize tax efficiency. This strategy is actually quite simple on face value, but could prove to be highly effective.
Essentially, these funds will invest in other ETFs that provide exposure to their chosen bond type. However, when these underlying ETFs are approaching Ex-Dividend, CPAG and CPHY will look to rotate out of the underlying ETFs and into highly similar funds.
Once the original underlying ETFs have paid out their dividends, CPAG and CPHY will actually rotate back into these core positions. What this does is accomplish a number of different goals at once.
Primarily, this strategy helps maximize the tax efficiency of fixed income investing. Since CPAG and CPHY do not seek to receive dividends, these funds will very possibly be able to avoid most, if not all, distributions.
Furthermore, this strategy could prove to be valuable for investors who want to remain engaged in fixed income but aren’t necessarily focused on accruing current income at the moment. Instead of monthly distributions, investors and advisors get to trade in for long-term tax-advantaged returns.
“This is exactly the kind of real-world challenge our team is built to solve,” noted Alexander Morris, CEO of F/m Investments. “With Compoundr, we’re targeting one of the most underappreciated frictions in the market: dividends that some investors would rather avoid.”
F/m Investments currently offers more than 15 different strategies within the ETF wrapper. In total, these funds represent over $7.9 billion in assets under management.
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