Tired of Tax Day? Municipal Bond Ladders Could Help

With Tax Day 2026 now in the rear view mirror, some investors may feel more inspired to optimize their portfolio in terms of tax efficiency. When it comes to maximizing tax-efficient total return, many turn to municipal bonds as a potential solution. This often makes a great deal of sense, given that the interest that municipal bonds tend to accrue is generally exempt from federal income tax. As such, high-quality municipal bonds can help bolster a portfolio with strong tax-advantaged yields.

Normally, when one is choosing to add muni bonds to their portfolio, they need to make a tough decision in terms of bond duration. Should they opt for short-duration munis, or is it time to play the long game?

Instead, it could be more fortuitous to get the best of both worlds, with a bond ladder ETF. Bond ladder ETFs invest in bonds of all kinds, and traditionally ladder their portfolio based on maturity.

Building Long-Term Muni Exposure With MUND

The Northern Trust 2055 Tax-Exempt Distributing Ladder ETF (MUND) offers a promising take on the bond ladder approach. As one would likely expect from the fund’s title, MUND curates a laddered portfolio of municipal bonds that aims to generate regular tax-exempt income.

For MUND, each of the rungs of its ladder represents a calendar year through 2055. Inside these rungs sit municipal securities that hit maturity in that respective year. The fund looks to allocate towards each rung in a relatively even manner, aiming to provide a more consistent income flow.

Additionally, MUND offers its investors the benefits of annual principal. When an underlying municipal bond hits maturity, most bond ladders would reinvest that principal into a later rung in the ladder. Instead, MUND distributes that principal on an annual basis, offering more avenues for tax-advantaged gains.

This approach encapsulates how MUND may help investors amplify the tax-efficiency within their portfolio. Within one ticker, investors get to tap into the potential for regular income, annual principal, and exposure to a variety of different municipal bond durations. And for those looking to minimize the impact Tax Day has on their bottom line, picking up a strategy like MUND could certainly pay off in the long run.

For more news, information, and strategy, visit the Bond Ladders Content Hub.

Disclosures:

ETF investing involves risk, and principal loss is possible.  Shares of any ETF are bought and sold at market price (not NAV). They are not individually redeemed from the ETF. Brokerage commissions will reduce returns.  The net asset value of the Northern Trust ETFs will decline over time as income is distributed to shareholders.  Individual bonds carry an obligation to return principal to investors at maturity fully, however ETFs have no such obligation.

Before investing, carefully consider the investment objectives, risks, charges, and expenses. This and other information is in the prospectus and a summary prospectus, copies of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest.

Northern Funds Distributors, LLC, distributor. Northern Funds Distributors, LLC and FlexShares are not affiliated with Northern Trust.

All investments are subject to investment risk, including the possible loss of principal amount invested. Investments do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

Not FDIC insured | May lose value | No bank guarantee

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