FALZX
Franklin AL Tax-Free Income-Adv
Tax-Free Income for Alabama Residents
The Franklin AL Tax-Free Income-Adv (FALZX) is designed to provide investors with a high level of income that is exempt from both federal and Alabama state income taxes. This makes it particularly attractive for residents of Alabama who are looking to maximize their after-tax income. The fund primarily invests in municipal bonds issued within the state, which not only supports local infrastructure but also offers tax advantages. With a yield of 2.79%, FALZX provides a steady income stream, making it a suitable choice for income-focused investors who prioritize tax efficiency. The fund’s focus on Alabama municipal bonds ensures that investors benefit from the tax-exempt status, which can be a significant advantage in a high-tax environment.
At A Glance
Executive Summary
FALZX offers Alabama residents tax-free income with a 2.79% yield and a competitive 0.65% expense ratio, focusing on municipal bonds.
Tax-free income for Alabama residents; Competitive expense ratio; Strong correlation with benchmark.
Limited sector diversification; Lower yield compared to peers; Negative three-year return.
Performance Amidst Market Volatility
FALZX has demonstrated resilience in the face of market volatility, as evidenced by its recent performance metrics. Over the past year, the fund has achieved a return of 9.37%, outperforming its benchmark, the BBG Muni USD Index, which returned 7.51% over the same period. This performance is particularly noteworthy given the fund’s focus on municipal bonds, which are generally considered to be lower risk compared to equities. The fund’s alpha of 1.86% indicates that it has generated returns above the expected level based on its beta of 1.20, suggesting effective management and strategic asset allocation. Despite a max drawdown of -2.5%, the fund has shown a strong recovery, highlighting its ability to navigate challenging market conditions.
Strategic Asset Allocation
The asset allocation strategy of FALZX is heavily weighted towards municipal bonds, with 98.63% of its portfolio dedicated to this asset class. This focus aligns with the fund’s objective of providing tax-free income through investments in municipal securities. The remaining allocation includes a small percentage in cash (1.10%) and corporate bonds (0.28%), which provides liquidity and potential for additional yield. The fund’s concentrated investment in municipal bonds reflects its commitment to delivering tax-exempt income, while the minimal exposure to other asset classes helps maintain its risk profile. This strategic allocation is designed to optimize income generation while minimizing exposure to market volatility.
Competitive Expense Ratio
One of the standout features of FALZX is its competitive expense ratio of 0.65%. This is particularly advantageous for investors seeking to maximize their net returns, as lower expenses can significantly enhance overall performance over time. Compared to similar funds in the municipal bond category, FALZX offers a cost-effective option for investors. For instance, while the expense ratios of comparable funds like THMBX and NSIOX are slightly lower, FALZX’s focus on Alabama-specific municipal bonds provides a unique value proposition for residents of the state. The fund’s efficient cost structure, combined with its tax advantages, makes it an appealing choice for cost-conscious investors.
Risk Metrics and Stability
FALZX exhibits a robust risk profile, characterized by a beta of 1.20 and a Sharpe ratio of 0.48. These metrics indicate that the fund has a moderate level of volatility relative to its benchmark, with a reasonable risk-adjusted return. The high correlation with its benchmark (98.95%) suggests that the fund closely tracks the performance of the broader municipal bond market, providing investors with a stable and predictable income stream. Additionally, the fund’s downside risk, as measured by its Ulcer Index of 0.93, is relatively low, indicating limited potential for significant losses. These risk metrics underscore the fund’s suitability for conservative investors seeking steady income with manageable risk.
Top Holdings and Sector Focus
The top holdings of FALZX are predominantly municipal bonds issued by various entities within Alabama, such as the Bessemer Governmental Utilities Services Corp and the Limestone County Water & Sewer Authority. These holdings reflect the fund’s strategy of investing in high-quality municipal securities that offer tax-exempt income. The focus on Alabama-based issuers not only supports local infrastructure projects but also aligns with the fund’s objective of providing state-specific tax advantages. The fund’s sector allocation is heavily concentrated in municipal bonds, with no exposure to traditional equity sectors, which reinforces its commitment to delivering tax-free income through a diversified portfolio of municipal securities.
Comparison with Similar Funds
When compared to similar funds, FALZX offers a unique proposition with its focus on Alabama municipal bonds. While funds like THMBX and NSIOX offer higher yields of 4.02% and 4.16% respectively, FALZX’s yield of 2.79% is competitive given its state-specific tax advantages. The fund’s expense ratio of 0.65% is in line with its peers, providing a cost-effective option for investors. However, the fund’s three-year return of -0.88% is a consideration for potential investors, as it lags behind some of its competitors. Despite this, FALZX’s strong correlation with its benchmark and its focus on tax-free income make it a compelling choice for Alabama residents seeking a stable, tax-efficient investment.
Conclusion: A Strategic Choice for Tax-Conscious Investors
In conclusion, the Franklin AL Tax-Free Income-Adv (FALZX) stands out as a strategic investment choice for Alabama residents seeking tax-free income. Its focus on municipal bonds issued within the state provides significant tax advantages, making it an attractive option for investors looking to maximize their after-tax returns. The fund’s competitive expense ratio and strong correlation with its benchmark further enhance its appeal. While its yield is slightly lower compared to some peers, the tax benefits and stability offered by FALZX make it a suitable choice for conservative investors prioritizing income and tax efficiency. Overall, FALZX is well-positioned to meet the needs of investors seeking a reliable, tax-advantaged income stream.
Similar Securities
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FTAZX: Franklin AZ Tax-Free Income-A1 | Tax-Exempt Income for Arizona Investors
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Futher Reading
https://finance.yahoo.com/quote/FALZX/”>Yahoo: Franklin AL Tax-Free Income-Adv
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