More Muni Investors Selecting Their Own Bonds

Klotz on Bonds

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<h3>James A. Klotz</h3>

James A. Klotz

As yields climb to their highest levels in years, an increasing number of investors are assembling their own portfolio of municipal bonds with the assistance of professionals, according to a recent report.

The goal of investors, Bloomberg said, is to be able to capitalize on opportunities that arise in the market and understand exactly what’s in their portfolios.

“This is part of a broader trend among clients taking advantage of some of the highest yields we’ve seen in fixed income in years,” an asset manager told Bloomberg.

More muni investors selecting their own bonds

Customized muni portfolio

Individual accounts specifically devoted to municipal bonds totaled $987 billion as of the first quarter, a survey showed. The movement of investors selecting the specific bonds they want to own has been picking up for years.

“Over the last decade we’ve had this mass customization push,” a municipal strategist for Bloomberg Intelligence said.

As a firm that has helped generations of investors identify opportunities and choose the bonds that suit their needs, we of course welcome the news. But we are unsurprised.

Individual issues for predictability, lower costs

As we have noted (“Who’s Buying Individual Municipal Bonds?”), investing in specific issues has a very strong appeal: It removes much of the guesswork in earning a desired level of tax-free income.

Markets gyrate, as do interest rates, inflation and many other economic factors. With individual bonds, however, investors don’t have to read the tea leaves. They know what their income will be and value the promise that their principal will be returned when their bonds mature or are called.

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    Plus, they don’t encounter the costs or ongoing fees associated with mutual funds.

    Further, with thoughtful selection, investors are also able to diversify their bond holdings.

    It has always made sense for investors to enlist the assistance of muni specialists and assemble their own bond portfolios. We are pleased that more investors are coming around to this notion.

    Owning bonds and generating a predictable stream of tax-free income should be drama-free. A customized portfolio of bonds helps make that possible.

    James A. Klotz is the President of FMSbonds, Inc.
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    Jul 27, 2023

    Please note that all investing entails risk. Fixed income securities are subject to risks that will affect their value prior to maturity. Some of these risks can be related to changes in market conditions, issuer creditworthiness, and interest rates. This commentary is not a recommendation to buy or sell a specific security. All references to tax-free income refer to U.S. federal income tax. Income earned by certain investors may be subject to the Alternative Minimum Tax (AMT), and or taxation by state and local authorities. Please consult with your tax professional prior to investing. For more information on these topics please click on the “Bond Basics” link below or search by keyword at the top of this page.