X-Square Capital is launching the first Puerto Rico Muni ETF, the X-Square Municipal Tax Income Free ETF (ZTAX). This ETF not only invests in Puerto Rico bonds but also includes U.S. Virgin Islands and Guam government debt in its portfolio.
ZTAX enters the fixed income market at a time when income is becoming relevant again. The ETF focuses on tax-exempt bond offerings, providing tax protection for investors who require it. Puerto Rico government bonds are particularly attractive as they are “triple tax exempt,” meaning they are exempt from federal, state, and local taxes.
ZTAX actively invests in U.S. dollar-denominated government debt from these three territories without any restrictions on maturity, duration, or credit rating. The ETF considers non-investment grade fixed income securities as those rated lower than BBB- by S&P. The Puerto Rico Muni ETF charges a 110 basis point fee for its investment approach. According to Todd Rosenbluth, VettaFi’s head of ETF research, ZTAX offers a more targeted exposure to Puerto Rico munis compared to other high-yield municipal bond ETFs that also include bonds from states like California, Illinois, and New York.
ZTAX’s managers select municipal investments based on the issuer’s legal and economic fundamentals, considering factors such as quality revenues, liquidity, and the macroeconomic environment of each issuer.
ETF Newz Says:
In the current market environment, where tax-exempt offerings can provide stability, ZTAX offers an intriguing option for investors interested in Puerto Rico munis. This ETF provides an opportunity for diversification and potential tax benefits, which could be valuable in a complex market landscape.