We had the pleasure of interviewing Tom Doe, the CEO and Founder of Municipal Market Advisors last Friday regarding the state of the municipal bonds. Founded in 1995, MMA is the leading independent strategy, research and advisory firm in the municipal bond industry. The first part of the interview is posted above. We'll be posting the second half later this week.
Highlights from the interview include:
1. Now is a difficult time for individuals to enter into the municipal bond market. So many investors have crowded into the market as a way to hedge against a potential future increase in taxes, that yields are very low.
2. Municipal bond credit risks are overblown. In fact, Tom believes that in a recent Baron's article that highlighted municipal bond risk may have partly been an attempt by hedge funds to create a buying opportunity for themselves.
3. He recommended different ways to invest in munis depending on how much you plan to put to work:
- <$100,000 - $500,000: should be invested in a mutual fund or ETF. Muni bond funds and ETFs have $6 billion in assets and are fast growing part of the market.
- $500,000 - $1,000,000: Investors have enough to make investing in individual bonds worthwhile.
- $1,000,000 + : Get a money manager to manage the portfolio.
4. The greatest risk to municipal bonds is not credit risk, but liquidity. Banks are limiting the amount of capital used to purchase munis. This has caused a reduction in liquidity, making it difficult to sell munis. Individuals, mutual funds, and money managers all face the similar constraints.
5. When looking for a money manager, look for one who has experience handling low liquidity. Right now, that's more important than a manager who can examine credit risks.
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