FKTIX
Franklin Federal Tax-Free Income-A1
Tax-Free Income with Prudent Investing
The Franklin Federal Tax-Free Income-A1 (FKTIX) is designed to provide investors with a high level of interest income exempt from federal income taxes, while also focusing on the preservation of shareholders’ capital. This fund is particularly appealing to investors in higher tax brackets who are looking to maximize their after-tax income. By investing primarily in municipal bonds, FKTIX offers a tax-efficient way to generate income, making it a strategic choice for those seeking to minimize their tax liabilities while maintaining a conservative investment approach.
At A Glance
Executive Summary
FKTIX offers a 3.60% tax-free yield with a low expense ratio of 0.64%, focusing on municipal bonds for capital preservation.
Tax-free income with 3.60% yield Low expense ratio of 0.64% Strong correlation with benchmark at 98.21%
Limited growth potential with 1.34% five-year return High beta of 1.18 indicates volatility Negative three-year return of -0.57%
Performance Amidst Market Fluctuations
FKTIX has demonstrated resilience in various market conditions, as evidenced by its recent performance metrics. Over the past year, the fund has achieved a return of 10.28%, significantly outperforming its benchmark, the BBG Muni USD Index, which returned 7.51% over the same period. This strong performance can be attributed to the fund’s strategic allocation in high-quality municipal bonds, which have provided stability and consistent income. However, it’s important to note that the fund’s five-year annualized return stands at 1.34%, indicating that while short-term performance has been robust, long-term returns have been more modest.
Portfolio Composition and Top Holdings
The portfolio of FKTIX is heavily weighted towards municipal bonds, with a staggering 99.24% allocation in this sector. This focus on municipal bonds aligns with the fund’s objective of providing tax-free income. The top holdings include bonds from the New York State Dormitory Authority and Tennergy Corp, among others, each contributing to the fund’s overall yield and stability. These holdings are selected for their creditworthiness and potential to deliver steady income, ensuring that the fund remains a reliable source of tax-free income for its investors.
Risk Metrics and Volatility Analysis
FKTIX exhibits a beta of 1.18, indicating a higher level of volatility compared to its benchmark. Despite this, the fund has managed to maintain a positive alpha of 2.76%, suggesting that it has outperformed the market on a risk-adjusted basis. The Sharpe ratio of 0.71 further underscores the fund’s ability to deliver returns relative to its risk. However, investors should be aware of the fund’s downside risk, with a maximum drawdown of -2.2%, which highlights potential vulnerabilities during market downturns. Overall, while FKTIX offers attractive returns, it also carries a degree of risk that investors should consider.
Comparative Analysis with Similar Funds
When compared to similar funds, FKTIX holds its ground with a competitive yield of 3.60% and an expense ratio of 0.64%. For instance, the Colorado BondShares A Tax-Exempt (HICOX) offers a higher yield of 5.01% but with a slightly lower expense ratio. Meanwhile, the MFS Municipal High Income-A (MMHYX) boasts a 15.20% one-year return, indicating a more aggressive approach. FKTIX’s strategy of focusing on high-quality municipal bonds provides a balance between income and risk, making it a suitable choice for conservative investors who prioritize tax efficiency over aggressive growth.
Expense Ratio and Cost Efficiency
The expense ratio of FKTIX is 0.64%, which is relatively low for a municipal bond fund. This cost efficiency is a significant advantage for investors, as lower expenses can lead to higher net returns over time. By keeping costs in check, FKTIX ensures that a larger portion of the fund’s income is passed on to investors, enhancing the overall yield. This makes the fund an attractive option for cost-conscious investors who are looking to maximize their after-tax income without incurring high management fees.
Investor Suitability and Strategic Fit
FKTIX is particularly well-suited for investors seeking tax-free income and capital preservation. Its focus on municipal bonds makes it an ideal choice for those in higher tax brackets who wish to minimize their tax liabilities. Additionally, the fund’s conservative investment strategy aligns with the needs of risk-averse investors who prioritize stability and consistent income over high-risk, high-reward opportunities. With its strong correlation to the benchmark and a robust yield, FKTIX offers a compelling option for those looking to enhance their fixed-income portfolio with tax-efficient investments.
Conclusion: A Strategic Choice for Tax-Efficient Income
In conclusion, the Franklin Federal Tax-Free Income-A1 (FKTIX) stands out as a strategic choice for investors seeking tax-efficient income through municipal bonds. With a competitive yield of 3.60% and a low expense ratio of 0.64%, the fund offers a compelling balance of income and cost efficiency. While it carries some volatility, as indicated by its beta, the fund’s strong performance and focus on high-quality bonds make it a reliable option for conservative investors. FKTIX is particularly suitable for those in higher tax brackets looking to preserve capital while maximizing after-tax income.
Similar Securities
PRINX: TRPrice Summit Municipal Income-Inv | Tax-Exempt Income Fund
PRINX offers a 3.23% yield with a low 0.5% expense ratio, focusing on investment-grade municipal bonds for tax-exempt income.
FTTMX: Franklin MI Tax-Free Income-A1 | Tax-Exempt Income for Michigan Investors
FTTMX offers Michigan residents tax-free income with a competitive 3.14% yield and a low 0.68% expense ratio, focusing on municipal bonds.
PRTAX: TRPrice Tax-Free Income-Inv | Tax-Exempt Income from Municipal Bonds
PRTAX offers a 3.28% yield with a focus on long-term municipal bonds, providing tax-exempt income and a competitive expense ratio of 0.53%.
FRVAX: Franklin VA Tax-Free Income-A1 | Tax-Exempt Income for Virginia Investors
FRVAX offers tax-free income for Virginia residents with a competitive 2.84% yield and a 0.73% expense ratio, focusing on municipal bonds.
OPTAX: Invesco AMT-Free Municipal-A | Tax-Exempt Income Investment
OPTAX offers a 3.77% yield with tax-exempt income, outperforming its benchmark with a 9.05% 1-year return.
Futher Reading
https://finance.yahoo.com/quote/FKTIX/”>Yahoo: Franklin Federal Tax-Free Income-A1
https://ftcloud.fasttrack.net/web/chart/FKTIX
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