By using active, fundamental research-driven approaches, investors can outperform and get more out of traditionally quieter segments, like municipal bonds. Tax-free ETF solutions that actively invest therein can assess issuers to find the right mix of bond holdings. 

For example, T. Rowe Price offers a variety of municipal bond ETFs that invest in tax free, income-generating debt. The active ETF experts recently launched a pair of new muni income ETFs. The (TMNL) and the (TMNS) arrived in November and target tax-free ETF income.

TMNL actively invests in munis, including certain derivatives, to generate tax-free income. Typically with a weighted average maturity greater than 10 years, it tends to hold a variety of muni bonds from general obligation to private activity bonds. Up to 25% of those holdings may be below investment grade. Its active managers assess factors like credit quality, rates, and overall economic outlook in addition to proprietary issuer research.

TMNS invests similarly, instead looking to debt with a maturity of five years or less. TMNS charges an 18 basis point (bps) fee, while TMNL charges a 26 bps fee. As of April 30, TMNL provided a 4.65% yield to maturity. TMNS meanwhile provided a 4.35% yield to maturity as of the same date, per T. Rowe Price data. 

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That active approach can produce some robust yields, while also reducing overall tax payments for a portfolio. When adding those funds’ impact up year over year, too, investors can start to see some serious results. Over time, compounding savings from reduced taxes and reinvesting those savings and income into equities could help portfolios take big leaps. Funds like TMNS and TMNL, playing satellite roles, could prove a shrewd medium- to long-term play to fill that role. 

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