SHDAX
Western Asset Short-Duration Muni Inc-A
Tax-Exempt Income with Capital Preservation
The Western Asset Short-Duration Muni Inc-A (SHDAX) is designed to provide investors with high current income that is exempt from regular federal income tax, while also focusing on preserving capital. This fund is particularly appealing to investors in higher tax brackets who are looking to minimize their tax liabilities. By investing at least 80% of its assets in municipal securities, SHDAX ensures that the income generated is largely tax-exempt. The fund’s strategy of maintaining an average portfolio duration of three years or less helps to mitigate interest rate risk, making it a suitable choice for conservative investors seeking stability in their portfolios.
At A Glance
Executive Summary
SHDAX offers tax-exempt income with a focus on capital preservation, featuring a low expense ratio and short duration for reduced interest rate risk.
Tax-exempt income potential Low volatility with short duration Focus on capital preservation
Lower yield compared to peers Negative alpha indicating underperformance Limited upside potential
Performance Analysis: A Conservative Approach
SHDAX has demonstrated a conservative performance profile, with a one-year return of 4.49% and an inception return of 1.79%. While these returns may seem modest, they reflect the fund’s focus on stability and capital preservation rather than aggressive growth. The fund’s performance is benchmarked against the BBG Muni USD Index, which had a one-year return of 7.51%. Although SHDAX underperformed its benchmark, its strategy is aligned with providing steady, tax-exempt income rather than chasing high returns. The fund’s low beta of 0.50 indicates reduced volatility compared to the broader market, which is a key consideration for risk-averse investors.
Expense Ratio: Competitive Yet Room for Improvement
With an expense ratio of 0.55%, SHDAX is competitively priced within its category, though there are similar funds with lower expense ratios. For instance, Colorado BondShares A Tax-Exempt (HICOX) and MFS Municipal High Income-A (MMHYX) both offer lower expense ratios of 0.61%. While SHDAX’s expense ratio is not the lowest, it remains reasonable given the fund’s focus on providing tax-exempt income and capital preservation. Investors should weigh the cost against the fund’s benefits, particularly its tax advantages and conservative investment strategy.
Risk Metrics: Stability in Focus
The risk metrics for SHDAX highlight its focus on stability and risk management. With a standard deviation of 0.49% and a beta of 0.50, the fund exhibits low volatility, which is attractive to investors seeking a steady income stream without significant price fluctuations. However, the fund’s negative alpha of -3.03% and Sharpe ratio of -1.79 suggest that it has not been able to generate returns commensurate with its risk level. Despite these metrics, the fund’s high correlation with its benchmark (94.68%) and R-squared value of 89.65% indicate that it closely tracks the performance of the municipal bond market, providing a reliable income source.
Portfolio Composition: A Focus on Municipal Bonds
SHDAX’s portfolio is exclusively composed of municipal bonds, with a 100% allocation to this asset class. This focus ensures that the fund’s income is largely exempt from federal taxes, aligning with its objective of providing tax-exempt income. The top holdings include bonds from various states and municipalities, such as Kentucky, Tennessee, and New York, which diversify the fund’s exposure across different regions. This diversification helps to mitigate the risk associated with any single issuer, contributing to the fund’s overall stability and reliability as a source of income.
Comparative Analysis: How SHDAX Stacks Up
When compared to similar funds, SHDAX offers a unique blend of tax-exempt income and capital preservation, though it may not be the top performer in terms of yield. For example, MFS Municipal High Income-A (MMHYX) offers a higher yield of 4.21% with a similar expense ratio. However, SHDAX’s focus on short-duration municipal bonds provides a distinct advantage in terms of interest rate risk management. This makes it a suitable option for investors who prioritize stability and tax efficiency over higher yields. The fund’s conservative approach may appeal to those who are more risk-averse and value the predictability of returns.
Investor Suitability: Ideal for Conservative Investors
SHDAX is particularly well-suited for conservative investors who are looking for a stable, tax-efficient income stream. Its focus on short-duration municipal bonds minimizes interest rate risk, making it an attractive option for those concerned about potential rate hikes. The fund’s low volatility and emphasis on capital preservation align with the needs of investors who prioritize safety over high returns. Additionally, the tax-exempt nature of the income makes it an appealing choice for individuals in higher tax brackets seeking to reduce their taxable income. Overall, SHDAX offers a compelling option for those seeking a reliable and tax-efficient investment.
Conclusion: A Reliable Choice for Tax-Exempt Income
In conclusion, the Western Asset Short-Duration Muni Inc-A (SHDAX) stands out as a reliable choice for investors seeking tax-exempt income with a focus on capital preservation. While it may not offer the highest yields compared to its peers, its conservative approach and low volatility make it an ideal option for risk-averse investors. The fund’s emphasis on short-duration municipal bonds provides a hedge against interest rate fluctuations, ensuring stability in uncertain market conditions. For investors in higher tax brackets, SHDAX offers a valuable opportunity to enhance after-tax income while maintaining a conservative investment profile.
Similar Securities
LTEBX: American Funds Limited Term TaxEx Bd-A | Tax-Exempt Income & Capital Preservation
LTEBX offers tax-exempt income with a focus on capital preservation, featuring a 0.6% expense ratio and 2.26% yield, ideal for conservative investors.
OLCAX: Invesco CA Limited-Term Municipal-A | Tax-Exempt Income Investment
OLCAX offers tax-exempt income with a focus on California municipal bonds, featuring a 2.92% yield and a 0.93% expense ratio.
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%.
LTNYX: Invesco Rochester Ltd-Term NY Muni-A | Tax-Exempt Income for NY Residents
LTNYX offers tax-exempt income with a 3.23% yield, focusing on NY municipal bonds. Its 0.90% expense ratio is competitive in its category.
SHDAX: Western Asset Short-Duration Muni Inc-A | Tax-Exempt Income & Stability
SHDAX offers tax-exempt income with a focus on capital preservation, featuring a low expense ratio and short duration for reduced interest rate risk.
Futher Reading
https://www.morningstar.com/funds/xnas/SHDAX/quote
https://finance.yahoo.com/quote/SHDAX/”>Yahoo: Western Asset Short-Duration Muni Inc-A
https://ftcloud.fasttrack.net/web/chart/SHDAX
https://www.wsj.com/market-data/quotes/mutualfund/SHDAX
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