California Muni ETF CATF Offers Tax-Free Income

American Century’s California Municipal Bond ETF (CATF) will mark its second anniversary in July. The actively managed fund holds 261 municipal securities issued by California entities and charges an annual expense ratio of 0.27%, equal to $27 on a $10,000 investment.

Interest from the ETF is exempt from federal income tax. For investors who live in California, interest from CATF may also be exempt from state income tax, depending on the bonds held and an investor’s tax situation.

American Century manages CATF with an active selection process intended to target higher-quality opportunities within the California municipal market and to avoid issues tied to financially strained municipalities. The firm describes the approach as focused on credit, interest-rate and relative-value prospects rather than replicating a broad index.

California is the largest state issuer of municipal bonds in the United States, and the market contains a wide range of credits and sectors. American Century notes that index-based strategies can hold a larger number of bonds by volume, while CATF concentrates holdings to reflect the manager’s selections.

The firm reported that municipal bonds have historically exhibited lower default rates than taxable corporate bonds with comparable credit ratings in data spanning the 1970s through 2024. American Century also reported that over extended holding periods municipal bonds have generally produced positive returns and have helped preserve capital during episodes of stock-market stress. The firm noted that municipal debt typically has low correlation with lower-rated corporate debt and domestic equities.

The ETF’s structure, tax status and active management define its characteristics. The fund is subject to municipal credit risk, interest-rate risk and state-specific tax rules. Investors should review the fund’s prospectus and tax guidance for details on holdings, fees and potential tax treatment.