Franklin Arizona Tax-Free Income A (FTAZX) is a Muni-Bonds fund that has a Zacks Mutual Fund Rank of 2 (Buy). Muni-Bonds funds invest in debt securities from states and local governments. These bonds often support projects like infrastructure and come with tax benefits. Managed by Franklin in San Mateo, CA, FTAZX began in September 1987 and has grown to over $273.03 million in assets. A team of investment experts currently oversees this fund.

Fund Performance and Volatility

FTAZX has a 5-year annualized return of 0.61% and a 3-year annualized return of 3.94%. This performance places it in the middle third compared to similar funds. Keep in mind that these returns may not account for all fees, which could lower the total return. The fund is also less volatile than its peers, with 3-year and 5-year standard deviations of 6.08% and 6.31%, respectively. FTAZX has a modified duration of 7.44, meaning it is sensitive to interest rate changes. It offers an average coupon of 4.6%, so a $10,000 investment generates $460 each year. Additionally, with a beta of 0.69 and a negative alpha of -0.23, FTAZX is less risky compared to the overall market. This fund is a load fund with an expense ratio of 0.67%, which is lower than the category average of 0.91%. You need at least $1,000 to start investing, but there is no minimum for additional investments. Recently, funds like FTAZX, which are rated “Buy,” are facing more scrutiny due to current market conditions. Last week, new Consumer Price Index data showed an unexpected rise in inflation, sparking discussions about the Federal Reserve’s upcoming decisions in January 2026. This has led to a sharp increase in Treasury yields, with the 10-year note now yielding 4.15%.

Risk Management and Market Strategy

A key figure for those trading derivatives is the fund’s modified duration of 7.44. This indicates a strong sensitivity to interest rate changes, which we have begun to experience again. For every 1% increase in rates, the fund’s value may decrease by about 7.44%. This makes it a valuable measure of risks in the longer-term municipal bond market. In the next few weeks, a wise strategy is to hedge against this duration risk. We are seeing more activity in purchasing put options on broad municipal bond ETFs, like MUB, to guard against further declines in bond prices. Shorting Treasury futures is another strategy that reflects expectations of the Fed adopting a more aggressive tone than what the market anticipated during the cuts of late 2024 and early 2025. It’s worth noting the fund’s low historical volatility compared to its peers. The 3-year standard deviation of 6.08% suggests a time of relative stability that may be ending. This shift from past calmness to current uncertainty indicates potential opportunities in volatility derivatives, like call options on the MOVE Index, which tracks bond market volatility. The fund’s average coupon of 4.6% also suggests a chance for relative value trades. Although this is attractive on a tax-free basis, its premium over the now-higher 4.15% taxable Treasury yield has significantly narrowed. Traders should keep an eye on this spread, as a movement towards safer investments could widen the gap between high-quality municipal bonds and Treasuries, creating more opportunities. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now