FCOZX
Franklin CO Tax-Free Income-Adv
Tax-Free Income for Colorado Residents
The Franklin CO Tax-Free Income-Adv (FCOZX) is designed to provide investors with a high level of income that is exempt from both federal and Colorado state income taxes. This makes it particularly attractive for residents of Colorado who are looking to maximize their after-tax income. The fund achieves this by investing at least 80% of its total assets in municipal securities whose interest is free from federal income taxes, including the federal alternative minimum tax. This focus on tax efficiency is a key selling point for the fund, especially for high-net-worth individuals in higher tax brackets who can benefit significantly from the tax-exempt status of the income generated.
At A Glance
Executive Summary
FCOZX offers tax-free income with a 3.22% yield and a competitive 0.6% expense ratio, ideal for Colorado residents seeking municipal bond exposure.
Tax-free income for Colorado residents Competitive expense ratio Strong correlation with benchmark
Lower yield compared to peers Negative three-year return Limited sector diversification
Performance in a Competitive Landscape
FCOZX has demonstrated a solid performance over the past year with a 9.28% return, outperforming its benchmark, the BBG Muni USD Index, which returned 7.51% over the same period. However, when compared to similar funds such as the DWS Strategic High Yield Tax-Free-S (SHYTX) with a 17.86% return, FCOZX’s performance appears more modest. Despite this, the fund’s focus on tax-free income and its competitive expense ratio of 0.6% make it a viable option for investors prioritizing tax efficiency over raw returns. The fund’s performance metrics, including an alpha of 1.77% and a beta of 1.07, indicate a strong ability to generate returns above its benchmark while maintaining a slightly higher risk profile.
Portfolio Composition and Top Holdings
The fund’s portfolio is heavily weighted towards municipal bonds, with 99.71% of its assets allocated to this sector. This concentration reflects its objective of providing tax-free income through investments in municipal securities. The top holdings include significant allocations to bonds issued by entities such as the Fort Collins Colorado Electric Utility Enterprise and the Public Authority for Colorado Energy Natural Gas Purchase Revenue. These holdings are indicative of the fund’s strategy to invest in high-quality municipal bonds that offer stable income streams. The focus on Colorado-based issuers also aligns with the fund’s goal of providing state tax-exempt income to its investors.
Risk Metrics and Volatility
FCOZX exhibits a relatively low level of volatility, with a standard deviation of 1.00% and a beta of 1.07, suggesting that it moves closely with its benchmark. The fund’s risk metrics, including a Sharpe ratio of 0.51 and a Treynor ratio of 1.66, indicate a reasonable risk-adjusted return profile. The fund’s correlation with its benchmark is high at 98.76%, which means it closely tracks the performance of the broader municipal bond market. The maximum drawdown of -2.2% over a short period highlights the fund’s resilience in maintaining capital during market downturns, although the lack of a recovery length suggests a need for cautious monitoring.
Expense Ratio and Cost Efficiency
With an expense ratio of 0.6%, FCOZX is competitively priced within the municipal bond fund category. This low expense ratio is a significant advantage for investors, as it allows more of the fund’s returns to be passed on to shareholders. In comparison to similar funds, FCOZX’s expense ratio is on par with or lower than many of its peers, making it an attractive option for cost-conscious investors. The fund’s management by Franklin Templeton Investments, a well-respected name in the investment community, further adds to its credibility and appeal.
Yield and Income Potential
FCOZX offers a yield of 3.22%, which is attractive for investors seeking steady income, particularly those in higher tax brackets who can benefit from the tax-exempt nature of the income. While this yield is lower than some of its peers, such as the Colorado BondShares A Tax-Exempt (HICOX) with a yield of 5.01%, the fund’s focus on high-quality municipal bonds provides a balance between income and risk. The fund’s yield is supported by its strategic allocation to bonds with favorable interest rates, ensuring a consistent income stream for its investors.
Comparative Analysis with Similar Funds
When compared to similar funds, FCOZX offers a unique proposition with its focus on tax-free income for Colorado residents. While funds like the Allspring High Yield Municipal Bond-Inst (WHYIX) and MFS Municipal High Income-A (MMHYX) offer higher yields, FCOZX’s emphasis on tax efficiency and its competitive expense ratio make it a compelling choice for investors prioritizing after-tax returns. The fund’s strong correlation with its benchmark and its strategic focus on Colorado-based municipal bonds further differentiate it from its peers, providing a niche investment opportunity for those looking to capitalize on state-specific tax advantages.
Conclusion: A Strategic Choice for Tax-Conscious Investors
In conclusion, the Franklin CO Tax-Free Income-Adv (FCOZX) stands out as a strategic choice for investors seeking tax-free income, particularly those residing in Colorado. Its focus on municipal bonds ensures a steady income stream, while its competitive expense ratio enhances its appeal. Although its yield is lower compared to some high-yield municipal bond funds, its tax efficiency and strong performance relative to its benchmark make it a suitable option for tax-conscious investors. FCOZX is best suited for those looking to balance income with tax savings, making it an ideal addition to a diversified portfolio focused on municipal bonds.
Similar Securities
SBNYX: Western Asset NY Municipals-A | Tax-Exempt Income for NY Investors
SBNYX offers NY tax-exempt income with a 3.05% yield and 0.8% expense ratio, ideal for tax-sensitive investors.
FKLAX: Franklin LA Tax-Free Income-A1 | Tax-Exempt Income for Louisiana Investors
FKLAX offers tax-free income for Louisiana residents with a 2.90% yield and a competitive 0.75% expense ratio, focusing on municipal bonds.
PTAEX: Putnam Tax-Exempt Income-A | Tax-Free Municipal Bond Investment
PTAEX offers tax-free income with a 3.19% yield and a focus on investment-grade municipal bonds, ideal for risk-averse investors.
FXNCX: Franklin NC Tax-Free Income-A1 | Tax-Free Income for NC Residents
FXNCX offers tax-free income for NC residents with a competitive 2.78% yield and a 0.70% expense ratio, focusing on municipal bonds.
PTEIX: Putnam NY Tax-Exempt Income-A | Tax-Free Income for NY Investors
PTEIX offers tax-free income with a 3.16% yield and a focus on New York municipal bonds, providing stability and capital preservation.
Futher Reading
https://finance.yahoo.com/quote/FCOZX/”>Yahoo: Franklin CO Tax-Free Income-Adv
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