Guidance

RESOURCES TO HELP SHAPE YOUR FINANCIAL FUTURE

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Patrick M. Morrissey
Managing Director - Senior Portfolio Manager and Head of Fixed Income
Great Lakes Advisors

For the past several months, negative headline news has beleaguered the municipal bond market. Budget shortfalls, fiscal improprieties, and sensationalism by the financial media have created additional challenges for municipal bond managers. What was once a homogenous segment of the capital markets, dominated by financial guaranty insurers, has quickly become an idiosyncratic and extremely technical market, fraught with pitfalls and quicksand at every turn.

Contributing even further to the protracted exodus from muni funds and muni bonds was the airing of a television program featuring a once prominent equity analyst predicting $50 to $100 billion in municipal defaults in 2011. The ongoing media coverage that ensued exacerbated the retreat, leading investors and fund managers to dump all muni holdings, regardless of issuer type, credit backing, or maturity. This has resulted in an environment that rewards heightened diligence and meticulous security selection for those willing and able to effectively “dumpster dive.” The secondary market is ripe with opportunity if you can sort through the myriad of offerings, decipher true creditworthiness, and find those bonds just right for you.

Considering the outlook for rising rates, we are advocating shorter maturity, lower-rated credits and bonds with defensive characteristics, namely those with embedded calls (kicker bonds) or active sinking funds, and certain high quality mortgage-backed munis. Also, we typically allocate a portion of our portfolios to exchange-traded funds that invest in short-term munis to provide liquidity for our clients. Our goal is to take advantage of dislocations in the market while preparing for a rising interest rate environment.

To learn more, contact a Financial Advisor today.