Fall has arrived, and with the crisp breezes and falling leaves comes a less pleasant reminder: the end of the tax year. Investors and advisors all must contend with paying the tax man for their previous income and gains. A variety of options exist, however, to offset those taxes, from tax loss harvesting to tax-exempt muni bonds. One ETF, the T. Rowe Price Intermediate Municipal Income ETF (TAXE), stands out in the later tax-exempt ETFs category for its active approach, leaning on T. Rowe Price’s research capabilities.

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TAXE charges a competitive 24 basis point fee for its approach. The fund actively invests, with the goal of providing a high degree of income via munis exempt from federal income taxes. The strategy targets intermediate maturity munis across a range of credit ratings and categories.

Its active managers scrutinize a variety of factors in assessing the investment potential of the various munis included. They consider metrics like prices, yields, credit quality, interest rates, and economic conditions as part of the fund’s approach. While that does include mostly investment-grade quality offerings, the fund’s managers retain the freedom to add junk high yield municipal bonds.

Tax-Exempt ETFs & Active Investing

That approach has helped the fund return 3.3% YTD, according to ETF Database data. That has outperformed the fund’s FactSet Segment average in that time frame, with that average coming in at 2%. From a yield perspective, it has done well, indeed; the fund has provided a 4.07% yield to maturity, per T. Rowe Price data as of August 31. 

Why look to active, then, among tax-exempt ETFs? Passive funds struggle with fundamental limitations with maintaining an allocation in the muni bond space. Bonds may be called early, for example, which can throw off an allocation if managers are not active and adaptable. What’s more, T. Rowe Price’s managers can lean on the the firm’s fundamental research capability to provide a deeper view. Looking ahead, it could make a nice addition to portfolios for those wanting to get ahead of the tax bill curve. 

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