New ETF Looks to Benefit from Municipal Bonds

A new ETF is trying to cash in on the municipal fund space.

BondBloxx’s Joanna Gallegos is behind the IR+M Tax-Aware Short Duration ETF (TAXX), which launched less than a month ago.

“When you think about municipal bond portfolios, you really want people to think further and look at the relative value of after-tax income,” the company’s co-founder and COO told CNBC’s “ETF Edge” on Monday.

Gallegos sees actively managed municipal exchange-traded funds as an opportunity to generate income in a high interest rate environment. She expects healthy returns even if the Federal Reserve starts cutting rates this year.

According to the BondBloxx website, almost 62% of TAXX’s holdings are municipal bonds. The five largest muni holdings by state as of Thursday were Illinois, Pennsylvania, New Jersey, New York and Alabama.

The ETF also includes exposure to corporate bonds and securitized bonds. The firm said the fund’s blended bond approach offers a “broader opportunity” to increase after-tax total returns. FactSet describes the fund as “tax efficient” – balancing strong after-tax income opportunities with capital preservation through both municipal and short-term taxable fixed income securities

“Right now the portfolio tax yield is close to 6%. If you look at it, it’s about 5.88,” Gallegos said. “It’s just the year to think about taxes.”

As of Friday, TAXX is down 0.2% since its March 14 launch date.

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