Tax-Aware Bond ETF Launches

Yesterday, Hartford Funds rolled out a fixed-income fund that seeks to address investors’ tax concerns. The Hartford Schroders Tax-Aware Bond ETF (HTAB) is an actively managed fund that can invest in a wide range of fixed-income securities as it seeks to deliver strong after-tax returns.

It comes with an expense ratio of 0.39% and lists on the NYSE Arca.

HTAB is subadvised by Schroder Investment Management North America. It invests mainly in a combination of tax-exempt municipal bonds and taxable bonds that are rated investment grade and denominated in U.S. dollars, the prospectus says.

Tax-Aware Approach

The fund’s strategy, according to a press release from Hartford, will look to exploit imbalances opening up between sectors and individual bonds, and manage interest rate risk through a sector rotation approach, attention to market conditions and adjusting the fund’s duration.

The prospectus points out that HTAB has no requirements regarding its duration or maturity. Neither is it required to invest exclusively in securities offering tax-exempt income, even though it may invest more than 25% of its portfolio in municipal securities from California, New York and Texas.

However, investors should note the fund must have at least half of its assets invested in tax-exempt securities at the end of each quarter to be eligible to pay exempt-interest dividends.

Bag Of Tricks

Beyond investing in munis, HTAB’s tax-aware bag of tricks includes targeting taxable securities that have favorable after-tax valuations as well as taking a long-term investment approach and minimizing short-term capital gains.

The fund will also benefit from the tax advantages that come with the ETF wrapper’s in-kind redemption process. Additionally, it can implement derivatives strategies to achieve its goals, in particular to manage its duration profile, the prospectus says.

The fund is Hartford’s fifth bond ETF.

Contact Heather Bell at [email protected]