FKNIX
Franklin NY Intermediate Tax-Free Inc-A1
Tax-Free Income Advantage
Franklin NY Intermediate Tax-Free Inc-A1 (FKNIX) is designed to provide investors with a high level of income exempt from federal, New York state, and New York City personal income taxes. This makes it particularly attractive for investors residing in New York who are looking to maximize their after-tax income. The fund achieves this by investing primarily in intermediate-term New York municipal securities, maintaining a dollar-weighted average portfolio maturity of 3 to 10 years. This focus on tax efficiency is a key selling point for the fund, especially for those in higher tax brackets who can benefit significantly from the tax-exempt status of the income generated.
At A Glance
Executive Summary
FKNIX offers tax-free income from NY municipal bonds with a 0.72% expense ratio, suitable for tax-sensitive investors seeking stable returns.
Tax-free income from federal, state, and city taxes Focus on New York municipal securities Intermediate-term maturity for stability
Higher expense ratio compared to peers Negative alpha and Sharpe ratio Limited upside potential
Performance in Context
The performance of FKNIX over the past year has been modest, with a 1-year return of 6.07%, which is below the benchmark BBG Muni USD Index’s return of 7.51%. Over longer periods, the fund’s returns have been mixed, with a 5-year annualized return of 0.67% and a 10-year return of 1.57%. These figures suggest that while the fund provides stable income, it may not be the best choice for investors seeking high growth. The fund’s inception return of 3.73% indicates a steady performance over its lifetime, but recent years have seen more volatility, as reflected in its negative alpha of -1.44% and a Sharpe ratio of -0.51, highlighting challenges in risk-adjusted performance.
Portfolio Composition and Strategy
FKNIX’s portfolio is heavily concentrated in municipal bonds, with 99.61% of its assets allocated to this sector. This focus aligns with its objective of providing tax-free income through investments in New York municipal securities. The top holdings include significant allocations to bonds issued by the Metropolitan Transportation Authority and the Long Island Power Authority, among others. These holdings reflect a strategy centered on investing in essential service providers within New York, which are generally considered to have stable credit profiles. The fund’s strategy of maintaining an intermediate-term maturity helps balance the need for income with the desire to manage interest rate risk.
Risk and Volatility Analysis
FKNIX exhibits a relatively low beta of 0.87, indicating that it is less volatile than the broader market. However, the fund’s risk metrics reveal some concerns. The standard deviation of 0.82% suggests low volatility, but the negative Sharpe ratio of -0.51 and Treynor ratio of -1.65 indicate that the fund has not been effectively compensating investors for the risks taken. The fund’s downside risk, measured by a downside risk (UI) of 0.81, is relatively low, but the max drawdown of -2.2% over a three-month period highlights potential vulnerabilities during market downturns. Investors should weigh these risks against the fund’s tax advantages when considering an investment.
Comparative Analysis with Peers
When compared to similar funds, FKNIX’s performance and expense ratio present a mixed picture. For instance, TRPrice Tax-Free High Yield-Inv (PRFHX) offers a higher 1-year return of 13.62% and a lower expense ratio of 0.67%, while also providing a higher yield of 3.67%. Similarly, Dupree NC Tax-Free Income (NTFIX) and JHancock High-Yield Municipal Bond-A (JHTFX) also outperform FKNIX in terms of returns and yield. These comparisons suggest that while FKNIX offers tax advantages specific to New York residents, investors seeking higher returns and lower costs might find better options among its peers.
Expense Ratio Considerations
The expense ratio of FKNIX stands at 0.72%, which is relatively high compared to some of its peers. This higher cost can impact net returns, especially in a low-yield environment. For investors, it’s crucial to consider whether the tax benefits and the fund’s specific focus on New York municipal bonds justify the higher expense ratio. While the fund’s tax-exempt income can be a significant advantage, the cost of maintaining the fund should be weighed against potential returns and the availability of lower-cost alternatives that might offer similar or better performance.
Investor Suitability and Profile
FKNIX is particularly suitable for New York residents in higher tax brackets who are looking to maximize their after-tax income through investments in municipal bonds. The fund’s focus on intermediate-term New York municipal securities provides a balance between income generation and interest rate risk management. However, investors should be aware of the fund’s higher expense ratio and its recent performance challenges. Those seeking higher growth or lower costs might consider other options, but for tax-sensitive investors prioritizing income stability and tax efficiency, FKNIX remains a compelling choice.
Conclusion: A Niche Offering for Tax-Sensitive Investors
In conclusion, Franklin NY Intermediate Tax-Free Inc-A1 (FKNIX) stands out as a niche offering for investors seeking tax-free income from New York municipal bonds. While its performance has been modest compared to some peers, the fund’s tax advantages and focus on intermediate-term securities make it a suitable option for tax-sensitive investors. The higher expense ratio and recent performance metrics suggest that it may not be the best fit for all investors, particularly those seeking high growth or lower costs. However, for those prioritizing tax efficiency and income stability, FKNIX offers a unique value proposition.
Similar Securities
VKMMX: Invesco Municipal Income-A | Tax-Exempt Income & Capital Preservation
VKMMX offers tax-exempt income with a 3.78% yield, focusing on investment-grade municipal bonds. It stands out with a high correlation to its benchmark.
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.
ACTHX: Invesco High-Yield Municipal-A | Tax-Exempt Income with High Yield
ACTHX offers a 5.14% yield with a focus on medium and lower-grade municipal securities, providing tax-exempt income for high-risk investors.
NJTFX: TRPrice NJ Tax-Free Bond-Inv | Tax-Free Income for NJ Residents
NJTFX offers tax-free income with a 3.12% yield and a low expense ratio of 0.57%, focusing on NJ municipal bonds for tax efficiency.
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://www.morningstar.com/funds/xnas/FKNIX/quote
https://finance.yahoo.com/quote/FKNIX/”>Yahoo: Franklin NY Intermediate Tax-Free Inc-A1
https://ftcloud.fasttrack.net/web/chart/FKNIX
https://www.wsj.com/market-data/quotes/mutualfund/FKNIX
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