Displaying items by tag: munis

Separately managed accounts (SMAs) have been utilized for decades to effectively manage client assets. Benefits include transparency, flexibility, control over costs, and choice. They can be optimized for various purposes including taxes, income, cash flow, etc. They also allow for more customization than ETFs or mutual funds. 

They are particularly popular for fixed income purposes and have seen impressive growth in recent years. For instance, municipal fixed-income assets went from $100 billion in 2008 to $718 billion in July 2023. In part, this is due to SMAs becoming more accessible to a wider universe of investors as improved technology has led to lower costs and lower minimum amounts to invest. 

ETF’s presence in the municipal bond market is also growing fast. There are now 81 funds and $108 billion in assets, a 50% increase from 2021 but less than 3% of the total muni market. Many active mutual funds are being converted into active ETFs. One advantage is greater liquidity which allows investors to quickly gain exposure as a placeholder while they accumulate individual securities.

Mutual fund flows can be affected by market sentiment, leading to selling during periods of redemption, which is not an issue with SMAs. Due to the growth of SMAs and ETFs, muni mutual funds have seen net outflows over the last couple of years. Another factor is high rates making short-term securities or bank deposits more attractive relative to longer-duration assets. 

Finsum: There are multiple ways to invest in municipal bonds. One of the fastest-growing methods is through separately managed accounts which offer some specific benefits relative to ETFs or mutual funds. 

Franklin Templeton is optimistic about fixed income in the coming year due to the Federal Reserve ending its hiking cycle, and inflation continuing to trend lower. However, it believes that rates will remain at these levels for much of 2024 in order for inflation to fall to the Fed’s desired level, leading to a more challenging environment in the first-half of the year. 

Amid this backdrop, the firm is bullish on municipal bonds especially with so many investors on the sidelines, overweight cash, or in short-term credit. Municipal bonds offer historically attractive yields, favorable tax treatment, and a longer-duration which should outperform in an environment with falling rates and a flattening yield curve. 

The firm notes that local governments remain in strong shape from a fiscal perspective even despite a slowdown in economic activity and rising costs. Many still have excess funds leftover from federal aid during the pandemic and have been relatively disciplined in terms of spending. Further, muni bonds have lower default rates than corporate credit while also having higher after-tax returns. Franklin Templeton believes many investors will reallocate from money markets into municipal bonds in order to lock in yields at these levels especially as monetary policy eases. 

Finsum: Franklin Templeton is bullish on fixed income in the coming year. It also highlights a bullish case for municipal bonds due to the sector’s strong fundamentals and favorable positioning in this macro environment. 

Goldman Sachs Asset Management recently launched the Goldman Sachs Community Municipal Bond ETF (GMUN). The ETF, which trades on the NYSE Arca, seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Bloomberg Goldman Sachs Community Municipal Index, a rules-based index designed to track the municipal securities market with remaining maturities between one and 15 years. The ETF also has screens that consider certain social or environmental factors. By focusing on 1-to-15-year maturities within the investment grade municipal bond universe, the portfolio will seek to deliver diversified market exposure with lower duration and higher credit quality than the broader municipal market. The ETF is managed by Goldman’s Municipal Fixed Income team which brings decades of experience with an active and disciplined approach to investing in a market that is vast and fragmented. The fund has an expense ratio of 0.25%. According to Goldman, targeted allocation into municipalities and projects with positive impact will provide the opportunity to invest in education, healthcare, clean energy, and more community-related initiatives.

Finsum:Goldman recently launched its first muni ETF, the Goldman Sachs Community Municipal Bond ETF (GMUN), which provides exposure to tax-exempt municipal securities with remaining maturities between one and 15 years.

Vanguard recently expanded its tax-exempt bond ETF lineup with the launch of the Vanguard Short-Term Tax-Exempt Bond ETF (VTES), which is built to help investors earn consistent, tax-exempt income. The fund’s objective is to track the performance of the S&P 0-7 Year National AMT-Free Municipal Bond Index using a sampling technique to closely match key benchmark characteristics. The index measures the investment-grade segment of the U.S. municipal bond market with maturities between one month and 7 years. This is Vanguard’s first US-listed ETF launch in nearly two years. The ETF, which is managed by Vanguard Fixed Income Group, has been listed on NYSE Arca with an expense ratio of 0.07%. Sara Devereux, Global Head of Vanguard Fixed Income Group had this to say about the launch, “The Vanguard Short-Term Tax-Exempt Bond ETF is built to optimize tax efficiency for investors seeking to allocate to the shorter end of the municipal bond market. The new ETF complements our broad fixed income line-up and provides clients with another avenue to tap our municipal bond team’s talent and capabilities.”

Finsum:Vanguard expanded its tax-exempt bond ETF lineup with the launch of the Vanguard Short-Term Tax-Exempt Bond ETF (VTES), its first US-listed ETF launch in nearly two years.

According to Morningstar's separate account/collective investment trust database, the top-performing fixed-income managers in 2022 managed to post positive returns during a historically tough year for the asset class. Five of the top 10 managers were in Morningstar's ultrashort bond category, while three were in the multisector bond category. The remaining two included one in the non-traditional bond category, and one, which was the top overall, in Morningstar's muni national long bond category. That top-performing strategy was the 16th Amendment Advisors LLC's Vicksburg strategy, which posted a gross return of 46.03% for the year. John J. Lee, a co-founder and managing member of the firm, said in an email to Pension & Investments, that the strategy benefited from a "cautious and bearish outlook on interest rates in general. Further, it took advantage of the disarray in the marketplace due to sharply rising rates and historically volatile markets." Lee said that it “holds investment-grade municipal bonds, corporate bonds, and their hedges in a strategy that is targeted to investors looking for non-correlated high-grade fixed-income exposure.” The second-ranked strategy was T. Rowe Price's dynamic global bond strategy, which returned 4.66% for the year. The strategy falls into Morningstar's non-traditional bond category and holds U.S. and international debt securities.

Finsum:According to Morningstar's SMA/CIT database, five of the top ten performing fixed-income managers were in the ultrashort bond category, three were in the multisector bond category, while the top two overall were in the muni national long bond category and the non-traditional bond category.