Municipal SMA Managers - Your Opinion & Experience
Do any of you guys have any experience in using any of these SMA managers for Intermediate and/or Long Term Municipals?
Breckinridge Capital Advisors
McDonnell Investment Management, LLC
Nuveen Asset Management
Would you recommend or avoid any of them in particular?
I've got a couple mil in Nuveen tax free muni CEFs and have been ok with them. Got beat up in '08 but have come back fine YTD. The average returns are around 4.5 - 5. Most are thinly traded though, so it'll take some time to get in/out if you trade a substantial amount.
I still struggle with the practical use of Municipal SMAs. I can't get my mind around paying 1% annually to buy muni's. You can talk about rolling down the yield curve or any other talking point, but at the end of the day, quality mid to long term Muni's pay (typically) around 5%. Taking 20% of the income to swap bonds doesn't make sense to me. Particularly given the fact that you can't deduct the fees.
The only upside to SMA's (or well-managed lower cost funds for that matter) is that they have much better access to the muni market than us buying individuals. They are buying up the best paper before we even hear about it. So there's a lot more work involved with buying them individually (which is ironic because we get paid less this way), because you have to make tradeoffs with credit quality, duration, and coupon (and possibly quantity available). This has been a much bigger issue the past year. But you guy's are right - it's tough to give away 100bips more-or-less for someone else to buy munis for you.
McDonnell and Breckenridge are good for intermediate munis. But you should also look at Sage for intermediate.
Long term muni I prefer Lord Abbett
Other issue is pricing. Muni Fund managers get institutional pricing, you get retail pricing. The differance can be 2-3pts on a long bond and even as much as a point on a 10y....translate into yield and the retail customer gets slammed.
If you live in a state with a lot of new issuance, than you can make a case to build a ladder, buying only new issue paper.
Another source is buying from bid lists. If you are looking for pieces of 10-100k then looking for odd lots via bid wanted lists is a great, but time consuming way to find paper at good prices. Just don't get greedy when you calculate your bid price.
People buy munis for tax free income. If purchased through a fund, or through a manager, buyers are sometimes surprised to have taxable gains at the end of the year.
Food for thought.
i use both intermediate and long term.
anyone thinking the management fee isn't worth the process just doesn't get it. not only do the institutions get better pricing and access, but the also buy full blocks of issues that never get to the general public. these bonds never get rated since there's no point to it. they get an extra 50bps+ since they never went through underwriting and syndicate.
if you think your bond desk isn't a profit center, i have a bridge to sell you. retail bonds trade at 75bps to 200bps mark ups from institutions. you have to get paid, eh? clients get burned buying long term paper from brokers.
do you really want to be sitting on blocks of 20 year paper in this environment? be able to shorten duration with a simple document, with all the tax efficiencies.
how many brokers bought san francisco go's at 65 that are now trading in the 80's?...nuveen did. i'll admit it, i wouldn't even know to look for such a deal, but that's why my clients get those that do.
Pay 100bps a year to save 2 or 3 pts on a 20-30 yr bond....Hmmmm, let me think on that one. 2pt equates to about 20bps on a 20yr bond, even less on a 30 yr bond. I think 2pts on a bond is a bargain for retail buyers considering they don't pay custodial costs or even postage when the brokerage firms sends out their interest checks.
If you are buying clean bonds, use individual bonds, but if you want some exposure to high yield, use a fund. Individual high yield bonds are too volatile for the average retail customer. Who wants the grief of owing a bond that blows up?
managed money ain't free, but running a bond portfolio yourself means missing out on the opportunity for cap gains. i don't care how tax sensative people are, they want to make money.
based on the previous post. if after 3 years, it isn't working, fire the managers. clients would be at break-even re: fees at that point anyway. not a bad free-look...
There are a few Bank of America financial advisors that will gross over $2 milllion this year, just managing bond portfolios for clients. However, it's definitely a dying breed. Just like the FA's that manage massive individual stock portfolios for clients.
1. Who has the time to do that anymore? Despite 2008, firms are still pushing advisors towards a fee-based model.
2. Bond pricing is far superior with municipal money managers. Nuveen and Eaton Vance can provide their pricing on bond issues compared to the retail cost. It is a sizable difference, especially in a year like 2008, when there was little new municipal paper.
3. From what I've seen, most muni managed money accounts charge less than 100 bps. More in the 60 to 80 bps range. Of course, advisors can structure the account to charge as much as possible and avoid any householding. But one can do the same when buying an individual bond (lengthen the term by an extra day to avoid a breakpoint).
I'll still buy an individual bond for clients if he or she is very specific about it or is not a long-term account. I'll also buy a big block of any stock they like but I realize it's only to generate the huge commission. Not really to add them as clients to my book.
I've used Nuveen for Short-Intermediate SMAs. They have performed well, nothing fancy and not a lot of trading, but steady. I don't charge 100 bps, usually around 70-80 depending on the ralationship.
Its great business because it's almost like cash management and you don't have to worry about picking the right bonds. I've been expanding my business in that area and after 2008, I'll take muni SMAs all day long.