Nomura National High-Yield Municipal Bond ETF (HTAX)

What are municipal bonds and why does HTAX exist?

Municipal bonds are debt issued by state and local governments, school districts, water authorities, and other public entities to fund infrastructure, schools, hospitals, and other civic projects. Interest paid on most municipal bonds is exempt from federal income tax, and often exempt from state and local taxes as well if you live in the issuing state. For investors in high tax brackets, that tax exemption can make a lower-yielding municipal bond more attractive on an after-tax basis than a higher-yielding corporate bond.

HTAX is a fund that buys municipal bonds nationwide, specifically those at the higher end of the yield spectrum. It does not limit itself to top-tier credit quality; it will buy bonds issued by municipalities with weaker credit ratings if the yield premium justifies it. This focus on yield over pristine credit means the fund carries more credit risk — the risk that a municipality will struggle to repay — but also distributes a higher level of tax-exempt interest to shareholders.

Who is this fund for?

HTAX is fundamentally a tax-advantaged investment for a specific cohort: individuals in the highest federal tax brackets, usually earning above $200,000 per year, and often residents of high-income-tax states like New York, California, or Massachusetts. For these investors, the tax exemption on municipal-bond interest can be worth more in after-tax income than a corporate bond yielding 1 to 2 percent higher gross.

An investor in the 37 percent federal tax bracket receives an implicit yield boost from holding a 4 percent tax-exempt municipal bond equivalent to a 6.3 percent taxable bond. For lower-income investors or those in low tax brackets, the benefit shrinks or disappears, and a plain bond fund might make more sense. For investors holding bonds inside retirement accounts, where taxation is deferred or zero, municipal bonds offer no advantage and municipal-bond funds are simply irrational.

How does HTAX differ from other muni funds?

The muni bond market is large and fragmented — thousands of different bonds issued by thousands of different entities across the country. Some muni funds emphasize safety and credit quality, holding only the strongest municipal issuers. Others, like HTAX, explicitly reach for yield, which means accepting weaker credits. The fund’s Nomura branding indicates involvement from Nomura Securities, one of the largest institutional bond traders, and the active-management approach means the fund’s holdings are selected, not mechanically indexed.

The “high-yield” designation is relative to investment-grade munis, not to corporate high-yield bonds, which are far riskier. HTAX is still holding municipal bonds from legitimate issuers — cities, states, transportation authorities — not sub-investment-grade debt. But it is accepting more credit risk to achieve higher current income.

What are the real risks?

The most obvious risk is credit risk: if a municipality’s finances deteriorate, or if a natural disaster or economic shock damages its tax base, the bond could default or lose value. The 2013 Detroit municipal bankruptcy and earlier cases like Stockton, California show that major cities can face severe fiscal stress. HTAX’s portfolio spread across the country reduces concentration risk — it is not betting on a single state or city — but it is not immune to systemic stress in the municipal market.

The second major risk is interest-rate risk. If the Federal Reserve raises rates, bond prices fall, and municipal bonds are no exception. HTAX’s longer-duration holdings will experience bigger price swings than a shorter-duration bond fund. Buying HTAX as a long-term hold in a rising-rate environment means accepting mark-to-market losses if you need to sell before rates stabilize.

A third consideration is liquidity. Individual municipal bonds can be hard to trade; the muni market is older and less electronically efficient than the corporate bond market. The ETF itself trades on an exchange, but the fund’s ability to buy and sell its underlying bonds without moving the market depends on current conditions.

How would an investor research HTAX?

Start with the fund’s prospectus and fact sheet, available from Hartford or the fund’s website. These documents specify the fund’s investment strategy, its fee structure, and the credit-quality distribution of its holdings. Check the yield-to-maturity of the fund’s current portfolio and compare it to other municipal bond funds to understand where it sits on the risk spectrum.

Look at the geographic composition: which states and municipalities does HTAX hold the most in? If your state is heavily weighted, you gain the extra tax benefit of state tax exemption. If you live in a low-tax state and the fund is underweighting your state, that benefit is lost, and you are holding out-of-state munis that offer only the federal tax advantage.

Finally, compare the fund’s after-tax return over a multi-year period to both a plain bond fund and a high-yield corporate bond fund at comparable maturity. The whole point of HTAX is the after-tax result; if it has not outperformed on a taxable-investor basis, the credit risk it is taking is not being compensated. Like any fund, past returns do not predict the future, but they illustrate whether the strategy’s promise has materialized in practice.