AB’s Active Tax Aware Municipal ETFs May Be a Smarter Long-Term Income Solution Than Cash
Key Takeaways
- Cash has offered a rare combination of yield and stability the past few years, but as interest rates stabilize or start to fall, investors will be forced to reinvest in lower cash yields.
- AB's Tax Aware Municipal ETFs offer the opportunity to lock in higher tax-efficient yields in high-quality municipal bonds that may offer more durable after-tax income potential.
- Actively managed, the strategies can navigate a fragmented market by adjusting duration positioning, identifying relative-value opportunities, and capitalizing on changing market patterns.
Cash Feels Safe in the Short Term, But Carries Risk
Cash has been hard to beat the past few years. With yields at multi-year highs, cash has offered a rare combination of yield and stability. That’s left many investors content to sit on the sidelines. But in today’s environment, that carries its own risks. Cash income is very sensitive to changes in interest rates, so while it may protect principal, it doesn’t necessarily protect long-term income.
As markets adjust to shifting economic conditions and rate expectations, investors are assessing how to position their excess cash for the long run. As interest rates stabilize, or start to fall, investors will need to reinvest proceeds in increasingly lower-yielding cash rates. And the after-tax return of cash is often lower than it seems, especially compared with tax-efficient municipal income.
Importantly, today’s elevated yields may provide a meaningful cushion against a range of rate outcomes while offering the potential to lock in attractive tax-efficient income.
AB Tax Aware Municipal ETFs: A More Durable Income Approach
Staying on the sidelines may mean missing out on an opportunity to lock in higher tax-efficient yields in high-quality municipal bonds that may offer more durable after-tax income potential. For investors looking to move beyond cash without taking excessive risk, short- and intermediate-duration municipal ETFs offer a compelling option.
- The AB Tax-Aware™ Short Duration Municipal ETF (TAFI) enables investors to take a first step out of cash. With a cash-like risk profile and relatively low sensitivity to interest-rate changes, TAFI may allow investors to capture approximately 200 basis points of additional tax-equivalent yield versus cash alternatives for only a modest extension in duration.
- The AB Tax-Aware™ Intermediate Municipal ETF (TAFM) offers investors willing to extend duration further a step up in yield and total-return potential, providing access to additional tax-efficient income opportunities while maintaining a relatively balanced risk profile.
AB Tax Aware Municipal ETFs Out Yielding Cash Alternatives on Tax-Equivalent Basis
Assumes max 40.8% tax rate.
TAFI and TAFM yield-to-worst shown on a tax equivalent basis. 30 Day SEC Yield for TAFI and TAFM is 2.89% and 3.66%. As of April 30, 2026
Source: Bloomberg, Morningstar, Bank Rate, Y-Charts and AB
TAFI and TAFM tax-equivalent yields reflects taxable bond exposure.
The performance shown for TAFI (Expense ratio: 0.27%, prospectus) and TAFM (Expense ratio: 0.28%, prospectus) represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance assumes reinvestment of distributions and does not account for taxes.
These Tax Aware Municipal ETFs leverage a differentiated investment approach that combines a ballast of high-quality municipal bonds with strategic relative-value opportunities across municipal credit and tactical allocations to opportunities in taxable bonds. The goal is to enhance after-tax income potential and diversification while helping investors navigate evolving market conditions.
AB Tax Aware Municipal ETFs (TAFI, TAFM, TAFL)
Leverages AB’s Differentiated Investment Process to Exploit the Inefficient Municipal Market
For illustrative purposes only. There can be no assurance that any investment objectives will be met.
*ALFA is a proprietary liquidity analytics tool that gives us a view into the market that no other asset manager has. ALFA automatically monitors the thousands of Bloomberg messages, electronic trading platform offerings and certain broker-dealer inventory items into a digitized database every day.
Source: AB
What Active Munis Offer in Today’s Market
Muni bonds are valued for their tax advantages and strong credit quality, but the inefficiencies of a fragmented market can lead to very different outcomes. That makes active management critical, with its ability to:
- Adjust duration positioning as interest-rate expectations evolve
- Identify relative-value opportunities across states, sectors and issuers
- Capitalize on market dislocations, supply-demand imbalances and liquidity dynamics
Holding cash can feel prudent in uncertain times, but it might also mean missing the opportunity to lock in higher yields, especially with more tax-efficient, income-generating alternatives like AB’s active TaxAware Municipal ETFs. TAFI and TAFM enable investors to stay defensive while putting capital to work. In a world where cash yields may be peaking, waiting may no longer be the safest option.
How to Take Action
Investors should consider the investment objectives, risks, charges and expenses of the Fund/Portfolio carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit our Literature Center or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
Duration is a measurement of a bond's interest rate risk that considers a bond's maturity, yield, coupon and call features.
Yield to Worst is the lowest possible yield a bond or bond portfolio can deliver, based on all potential call or maturity dates, assuming no default.
Click each link for funds standardized performance.
The performance shown for TAFI (Expense ratio: 0.27%) and TAFM (Expense ratio: 0.28%) represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance assumes reinvestment of distributions and does not account for taxes.
Below Investment Grade Securities Risk: Investments in fixed-income securities with lower ratings (a/k/a junk bonds) are subject to a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific municipal or corporate developments and negative performance of the junk bond market generally and may be more difficult to trade than other types of securities.
Bond Risk: The Fund is subject to the same risks as the underlying bonds in the portfolio such as credit, prepayment, call and interest rate risk. As interest rates rise the value of bond prices will decline.
Derivatives Risk: Derivatives may be more sensitive to changes in market conditions and may amplify risks.
Municipal Market Risk: Economic conditions, political or legislative changes, public health crises, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities may negatively impact the yield or value of a municipal security.
Tax Risk: The U.S. Government and the U.S. Congress may periodically consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Fund by increasing taxes on that income.
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AL-939850-2026-05-19