FTOH targets Ohio municipal bonds specifically, offering federally tax-exempt income that's also exempt from Ohio state taxes for residents. This narrow geographic focus creates a concentrated bet on Ohio's fiscal health in exchange for maximum tax efficiency.
How It Works
The fund actively manages a portfolio of Ohio munis across the credit spectrum, from general obligation bonds backed by taxing authority to revenue bonds tied to specific projects like utilities or hospitals. Franklin's team balances yield hunting with credit analysis, typically holding 50-100 positions with an intermediate duration around 5-7 years. The active approach allows tactical shifts between sectors and credit qualities as Ohio's economic conditions evolve.
Key Features
- Triple tax exemption for Ohio residents (federal, state, and often local), maximizing after-tax yield
- Active management navigates Ohio's diverse muni landscape from Cleveland hospital systems to Cincinnati utilities
- Zero expense ratio makes this cheaper than buying individual bonds through most brokers
Risks
- Geographic concentration means Ohio budget crises or economic downturns could hit 100% of holdings simultaneously
- Interest rate sensitivity with ~6 year duration suggests 6% loss for each 1% rate rise
- Credit events in major Ohio issuers (think Detroit-style bankruptcy) could create permanent capital losses
Who Should Own This
Built for high-earning Ohio residents in the 32%+ federal bracket who want muni exposure without the hassle of laddering individual bonds. The tax math works best for those facing combined federal-state rates above 40%. Makes sense as a 10-20% fixed income allocation for Ohio-based investors who understand they're trading diversification for tax efficiency.