The strategy seeks to generate high current income exempt from federal income tax by investing in a diversified portfolio of municipal bonds with varying maturities.
Step 1: Macro Analysis and Interest Rate Strategy Development
- Develop a macroeconomic outlook and a forecast for the expected behavior of municipal interest rates
- Employ a duration neutral approach, generally keeping duration within a range of plus/minus 10% of the benchmark
Step 2: Sector Strategy
- Determine the sectors that represent the best value in the market through a combination of relative value signals as well as fundamental credit analysis to position the portfolio advantageously for specific market environments
Step 3: Security Selection
- Identify value opportunities though detailed fundamental and structural analysis
- Focus on higher quality segment of the market, although relative value analysis may lead opportunistically to below investment grade holdings
- Analyze supply and demand of the issuer, sector, structure, or geographic region to identify relative value
Step 4: Portfolio Management
- Thorough pre-trade portfolio analysis
- Maximize tax efficiency
- Relatively low turnover
Important risk considerations
- Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
- Municipal Market: Events negatively impacting a municipal security, or the municipal bond market in general, may cause the fund to decrease in value.
- Tax Liability: Noncompliant conduct by a municipal bond issuer, or adverse interpretations, could cause interest from a security to become taxable, subjecting shareholders to increased tax liability.
- State & AMT Tax: A portion of income may be subject to some state and/or local taxes and, for certain investors, a portion may be subject to the federal alternative minimum tax.