This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the top of any article.
The Interest Rate Question and Municipal Bonds, Part III: Is Now the Time to Buy?
In the last two parts of this series, we have discussed the spreads between municipal and government debt, and the after-tax yield of junk bonds versus munis. We also examined the current fundamentals of the muni market, and went away with a general feeling that the asset class is getting increasingly interesting, yet isn’t quite irresistible.
We’ll give the last word in this series to James Grant, editor of Grant’s Interest Rate Observer. In this Bloomberg video, he sees the real risk of municipal debt as the same risk facing all fixed income markets – the threat of higher interest rates.
Although this interview is certainly worth watching, I believe it is absolutely essential to include bonds of some form in diversified portfolios – regardless of the rate environment. The role of the advisor is to determine the most attractive part of the fixed income universe for each client. I believe that munis are a sensible choice (as are some mortgage debt) over high-yield and government bonds. But it’s likely that the tax-free sector will get even more attractive due to flows out of muni funds and into equities.
Read more from Ben Warwick on municipal bonds:
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
Comments
