FFTFX
Franklin Federal Limited-Trm T/F Inc-A1
Tax-Exempt Income Strategy
Franklin Federal Limited-Trm T/F Inc-A1 (FFTFX) is designed to provide investors with a high level of income exempt from federal income taxes. The fund achieves this by investing at least 80% of its net assets in securities that pay interest free from federal income taxes, including the federal alternative minimum tax. This makes FFTFX particularly attractive to investors in higher tax brackets who are looking to maximize their after-tax income. The fund’s focus on municipal bonds with an average maturity of less than five years helps to mitigate interest rate risk, making it a suitable choice for conservative investors seeking stability and tax efficiency.
At A Glance
Executive Summary
FFTFX offers tax-exempt income with a 2.66% yield and low volatility, ideal for conservative investors seeking short-term muni exposure.
Tax-exempt income potential Low volatility with short-term focus Managed by Franklin Templeton Investments
Lower returns compared to peers Negative alpha and Sharpe ratio Limited growth potential
Performance in a Competitive Landscape
FFTFX has shown a mixed performance when compared to its peers and benchmark. Over the past year, the fund has delivered a return of 5.70%, which is respectable but falls short of the BBG Muni USD Index’s 7.51% return. When compared to similar funds like Colorado BondShares A Tax-Exempt (HICOX) and MFS Municipal High Income-A (MMHYX), which have returns of 12.23% and 15.20% respectively, FFTFX’s performance appears modest. However, its focus on short-term municipal bonds provides a lower risk profile, which may appeal to investors prioritizing capital preservation over high returns.
Risk Metrics and Volatility
FFTFX exhibits a low-risk profile, as evidenced by its beta of 0.48, indicating less volatility compared to the broader market. The fund’s standard deviation of 0.48% further underscores its stability. However, the negative alpha of -1.82% and Sharpe ratio of -1.10 suggest that the fund has underperformed on a risk-adjusted basis. Despite these metrics, the fund’s downside risk is relatively low, with a maximum drawdown of only -0.8%. This makes FFTFX a potentially suitable option for risk-averse investors seeking steady, tax-exempt income.
Portfolio Composition and Holdings
The fund’s portfolio is heavily weighted towards municipal bonds, with 95.68% of its assets allocated to this sector. This focus aligns with its objective of providing tax-exempt income. Notable holdings include the Franklin Municipal Green Bond ETF (FLMB) and various municipal revenue bonds, such as the Garden State NJ Preservation Trust and Southeast Texas Housing Finance Corporation. These investments reflect a diversified approach within the municipal bond space, targeting sectors like energy and housing. The fund’s top holdings are strategically selected to balance yield and credit quality, supporting its income-generating mandate.
Expense Ratio and Cost Efficiency
FFTFX has an expense ratio of 0.56%, which is relatively competitive within the municipal bond fund category. While not the lowest among its peers, it remains reasonable given the fund’s focus on tax-exempt income and short-term securities. Investors should weigh this cost against the fund’s performance and tax benefits. Compared to similar funds like BlackRock Short-Term Municipal-InvA (MELMX) with an expense ratio of 0.60%, FFTFX offers a slightly more cost-effective option for those prioritizing tax efficiency and income stability.
Yield and Income Potential
With a yield of 2.66%, FFTFX provides a steady stream of tax-exempt income, appealing to investors seeking regular income without the burden of federal taxes. This yield is competitive within the short-term municipal bond category, though it may not match the higher yields offered by funds with longer durations or higher risk profiles. The fund’s focus on short-term securities helps maintain a balance between yield and risk, making it an attractive option for income-focused investors who prioritize tax efficiency and capital preservation.
Comparative Analysis with Similar Funds
When compared to similar funds, FFTFX offers a unique blend of tax-exempt income and low volatility. While its one-year return of 5.70% is lower than that of Colorado BondShares A Tax-Exempt (HICOX) and MFS Municipal High Income-A (MMHYX), FFTFX’s focus on short-term municipal bonds provides a more conservative investment approach. Its beta of 0.48 indicates lower market sensitivity, which may appeal to investors seeking stability. However, those looking for higher returns might consider alternatives like HICOX or MMHYX, which offer higher yields and returns but with increased risk.
Conclusion: Suitability for Conservative Investors
FFTFX stands out as a suitable option for conservative investors seeking tax-exempt income with minimal volatility. Its focus on short-term municipal bonds provides a stable investment environment, ideal for those in higher tax brackets looking to maximize after-tax income. While its returns may not match those of more aggressive funds, FFTFX offers a balanced approach with a competitive expense ratio and a focus on capital preservation. Investors prioritizing tax efficiency and steady income will find FFTFX a compelling addition to their portfolios.
Similar Securities
FFTFX: Franklin Federal Limited-Trm T/F Inc-A1 | Tax-Exempt Income Strategy
FFTFX offers tax-exempt income with a 2.66% yield and low volatility, ideal for conservative investors seeking short-term muni exposure.
PSMEX: Putnam Short-Term Municipal Income-A | Tax-Exempt Income & Capital Preservation
PSMEX offers tax-exempt income with a focus on capital preservation, featuring a 3.08% yield and low volatility, ideal for conservative investors.
ORSTX: Invesco Short Term Municipal-A | Tax-Exempt Income Investment
ORSTX offers tax-exempt income with a 3.23% yield, focusing on short-term municipal bonds. Its 0.74% expense ratio is competitive in its category.
PRFSX: TRPrice Tax-Free Short/Intermediate-Inv | Tax-Exempt Income with Stability
PRFSX offers tax-exempt income with a focus on municipal bonds, maintaining investment-grade quality and low volatility, ideal for conservative investors.
PRMDX: TRPrice MD Short-Term Tax-Free Bond-Inv | Tax-Free Income for Maryland Investors
PRMDX offers tax-free income with a focus on Maryland bonds, low volatility, and a competitive expense ratio of 0.53%.
Futher Reading
https://www.morningstar.com/funds/xnas/FFTFX/quote
https://finance.yahoo.com/quote/FFTFX/”>Yahoo: Franklin Federal Limited-Trm T/F Inc-A1
https://ftcloud.fasttrack.net/web/chart/FFTFX
https://www.wsj.com/market-data/quotes/mutualfund/FFTFX
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