Innovative Tax Strategies in Bond Investing [Alex Morris] | #596

What It Covers

Alex Morris, CEO of F/m Investments, explains innovative tax-efficient bond ETF structures including T-Bill replication funds and new "compounder" products that eliminate taxable distributions while maintaining full bond market exposure through strategic ETF rotation.

Key Questions Answered

• •Ultra-Short Treasury Innovation: F/m's TBIL fund replicates on-run 90-day Treasury bills with six billion dollars in assets, passes through securities lending revenue generating four to ten basis points additional yield, and rolls positions efficiently without basis risk unlike Treasury futures.
• •Inflation Protection Without Duration Risk: The RBIL fund provides CPI participation with only six months duration by buying TIPS securities within thirteen months of maturity, capturing structural cheapness as large institutions dump near-maturity TIPS, avoiding the duration losses that hurt long TIPS holders during 2021-2022 rate increases.
• •Tax-Free Compounding Structure: New compounder series (CPAG for aggregate bonds, CPHY for high yield) eliminates all taxable distributions by rotating between similar ETFs before dividend dates, delivering total return as price appreciation only, allowing indefinite tax deferral for taxable account holders who typically reinvest distributions anyway.
• •Securities Lending Revenue Capture: Bond ETFs can generate four to ten basis points through securities lending programs using third-party agents like eSec, requiring over 100% collateralization, with all revenue passed to investors rather than fund managers, replicating what large institutions do with treasury holdings.
• •Mutual Fund Share Class Conversion: Coming dual share class structure will allow mutual fund holders to convert tax-free into ETF share classes of the same fund, eliminating embedded capital gains distributions while maintaining the same underlying portfolio, expected to launch in 2026 after regulatory approval completes.