Municipal bonds have provided both tax-efficient income and much-needed diversification throughout 2020. Yet many investors are (rightly) concerned about state budgets and the prospects for federal stimulus. There has never been a better time to seek help from what has been a long-term resilient asset class.
In the next webcast, Not all vanilla: why active management makes sense in municipal bonds, Matt Lewis, Vice President, Head of ETF and Capital Markets Implementation, American Century Investments; and Joseph Gotelli, vice president, portfolio manager, American Century Investments, will show you how adding municipal bonds to the equation can be the solution.
Specifically, fixed income investors can look to American Century Diversified Municipal Bond ETF (NYSEArca: TAXF).
âMany investors look to municipal bonds for their attractive taxable equivalent yields and relatively low default rates. Yet a passive market-weighted index approach may not fully capture these opportunities, âaccording to American Century.
âIt’s because the market is very fragmented. It consists of over a million municipal securities in circulation, which makes it difficult to replicate market-weighted indices. Municipal indices also often overweight projects or sectors with high debt. In addition, investment grade indices exclude unrated issues that may offer potential for capital appreciation. “
The American Century Diversified Municipal Bond ETF is an actively managed municipal bond fund that combines investments in carefully considered high yield and investment grade municipal bonds. Designed for investors seeking current income, the fund dynamically adjusts investment grade and high yield exposures according to prevailing market conditions.
The bond ETF seeks constant tax-free income; dynamically allocates to investment grade and up to 35% high yield to take advantage of existing market conditions; uses an active and proven process designed to identify attractive issues with low risk of default; and aligns risk exposures with the most compelling ideas.
TAXF sub-sector weights include the special tax of 15.9%; Local GO 9.2%; state GO 91,%; municipal enterprises 8.7%; hospital 7.8%; toll facilities 6.2%; tobacco regulation 4.8%; water & sewer 4.8%; charter school 4.7%; retirement community 4.2%; student accommodation 4.0%; public power 3.8%; other transport 3.6%; pre-reimbursed 3.3%; airport 3.1%; collective housing 2.3%; rental income 1.5%; university audience 1.3%; and other public services 0.9%.
The credit quality breakdown includes AAA 8.9%; AA 28.7%; 19.9%; BBB 20.1%; BB 6.8%; and not rated 14.9%.
Major state allocations include California 17%; Illinois 10%; Texas 9%; Florida 8%; and Arizona 7%.
TAXF has a term of 5.3 years and a 30-day SEC yield of 1.57%.
Financial advisors who want to learn more about an active ammunition strategy can sign up for the Tuesday, December 8 webcast here.