Our Strategy Overview
Looking to increase yield without taking on additional material credit risk?
In the recent low-interest-rate environment, earning attractive inflation-adjusted returns has been a challenging endeavor for fixed income investors. By understanding the deeper intricacies of the municipal market, MBG assists clients in addressing this challenge.
MBG finds opportunity in the municipal market in several ways, including:
Credit: Municipal bond investors can earn more yield by utilizing the entire investment grade market, while hardly changing a portfolio’s overall risk composition. How? “A” rated municipal bonds offer higher yields than AAA municipal bonds. However, not only do A-rated municipal bonds have a default rate of only 0.11% more than AAA municipal bonds, A-rated municipal bonds default less than AAA corporate bonds. Given the very high quality of an A-rated municipal bond, by owning all types of investment-grade municipal bonds, you can get paid extra yield by taking almost no measurable additional risk.
Structure: MBG utilizes callable bonds with above-market coupons to reduce duration while increasing overall yield. We leverage both strategic broker relationships around the country and our technological resources to find value for our clients while staying within the parameters of their investment objectives.
Our Enhanced Tax-Exempt Municipal Bond Strategy has historically produced superior risk-adjusted returns over other investment-grade bond vehicles. For investors looking for active fixed income management at a lower cost than most actively managed ETFs and Mutual Funds, our strategy is right for you.
Enhanced Opportunistic Tax-Exempt Strategy
Seeks to maximize risk-adjusted after-tax returns, while preserving capital. Takes an opportunistic approach, utilizing callable bonds and other features of portfolio structure to reduce duration while increasing overall yield. The strategy allocates mostly to bonds that have call/maturity dates around the steepest part of the yield curve.
This strategy best suits a client with a sizable fixed income allocation and seeks to generate extra yield, knowing that incremental duration risk also comes into play. The client is comfortable with substantial optionality embedded in callable bonds and has no short-term liquidity needs.
KEY STRATEGY STATISTICS (as of 4/30/2020):
|
Strategy |
Years Out | Coupon | YTM | YTW | Duration | Estimated Annual Income for $1,000,000 portfolio |
|
Enhanced Opportunistic |
5.48 | 4.51 | 4.13 | 3.26 | 8.22 | $36,000 |