Municipals

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Apr 3, 2009 1:52 pm

Which managers are some of you guys using for muni's?  I'm looking to use a manager for larger accounts.  Any ideas?

Apr 3, 2009 3:03 pm

Snags, muni's don't need to be managed. The fee's needlessly cut into the client's yield or income. I realize you didn't ask whether or not munis should be managed, so maybe others can answer the question you did ask. Still, you should consider doing it yourself.

 
Just know this: If you are using muni managers you can't compete with guys like me on price. And in the "large muni account market" it's all about price. Don't put yourself at a competitive disadvantage.
 
As for size, what do you consider to be a larger account?  There really is no size limit. In fact, the bigger the better.
Apr 3, 2009 3:20 pm

Snags, I generally use Franklin.  But typically I am only using them to reinvest interest from individual muni's or for small amounts.  I agree with BG, large amounts are much better suited for individual muni's.  Anytime I have a big client that needs a lot of bonds or large amounts, I just call the bond desk and ask them to go out and find some that aren't in inventory.  I just can't justify using funds that almost never earn more than 4-4.5%.

Apr 3, 2009 3:26 pm

Are you guys still finding good deals on individual issues out there?  Has that boat left the harbor already?

 
I have a guy worth about $12MM that is really close to giving me a shot with a mill or two and need some tactical plays for the next year or so.
 
I know he doesn't have any alternatives at all.  His private bank people haven't called him and don't do anything for him.
 
I'm thinking since he has a decent chunk already in equities with them, maybe I go the route of munis, alternatives, tips?, and high yield bonds.  He also is open to the idea of stashing away money in his own private pension (VA).
Apr 3, 2009 6:07 pm

The muni market has tightened up in some areas, but it is still, let me use the big Wall Street terminology here, "Decoupled" from it's traditional relationship with treasuries. And the further away from short term and AAA you go the more decoupled it is.

 
Investors feel comfortable buying AAA paper, so that paper has rallied since the first of the year. We're seeing movement further down the ratings scale as well, but not nearly as much. High yield munis are still severly discounted. Anything with a wart is also discounted. For example, AMT bonds.  Non essential service revenue bonds are still really weak. Essential servive revs are still a great deal!
 
I'm very careful about what i'll buy these days, but there is nothing wrong with buying non essential revenue paper if your or your bond traders know the credit and can accurately access the risk.
 
Call your bond guys and have a talk. Find out what they like and why.
 
You'll be doing anyone you meet a favor by putting them into munis now.
 
 
Apr 3, 2009 10:34 pm

I'll second Franklin for managed money, but for this guy I would give him a presentation on individual munis.
If he puts 2 million into a muni ladder, you could sell him on making 'tactical plays' with the interest.
Actually, 'tactictal plays' sound like a way of saying, 'I have too much money, and I will probably give it to a private equity guy to blow buying shopping malls.'

Apr 6, 2009 4:14 pm
Quagmire:
BondGuy:
You'll be doing anyone you meet a favor by putting them into munis now.

 

 



I'll save this quote for when the long term bond yield goes up 2%

 
You may be right! Then again, you may be wrong. That you use the word "when" and not the word "if" shows me that you must be a lot smarter than I am because I have no idea what direction interest rates are going to go. Or, when they're going to go there.
 
One calculation i'd have handy though, if I were you, is a cost of waiting calculation.
 
For my part, when it comes to long term bonds it's like i always say " You know Mr. Quagmire I have no idea what interest rates will be next year, or even the year after that. We've got people that we pay a lot of money to to tell us that, but i'm just not smart enough to know myself. To tell you the truth, i'm not sure they're smart enough either. I hope rates are higher a year from now, i really do. Because then I can get you a better yield and more income, and that's not a bad thing. But I will say this, if the worst thing we ever do together is buy a 5% tax free bond, well then, we're going to have very long relationship."
Apr 9, 2009 12:03 pm

The spread between muni and fed debt already indicates that prices are discounted in anticipation of interest rates going up.  JMO.  If in the off chance interest rates don't go up, I'm win / win.  Build a laddered portfolio, limit the duration and clients will be happy regardless of what happens.