Change is the law of life. And those who look only to the past or present are certain to miss the future. – John F. Kennedy
Theme 2. Elevated tactical trading drives returns
Active management should differentiate performance outcomes in an expected lackluster 2022 municipal market. We believe one- to ten-year ladder strategies and/or SMAs will lag actively managed strategies, which may be counterintuitive to many municipal investors. We expect heightened levels of portfolio activity centered on tactical allocations among bond structures and credit qualities to produce meaningful alpha in portfolios. In addition, strategic cash allocations can balance portfolio duration and fund the purchases of securities in the event of volatility. In 2022, investors should be mindful of active strategy claims from managers whose trading is primarily tied to reinvestment. In our view, traditional passive municipal investors shifting to tactical active management in 2022 may improve outcomes.
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All investments are subject to market risk, including possible loss of principal.
Municipal bond risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers, and the possibility of future tax and legislative changes, which could affect the market for and value of municipal securities. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated securities.
Past performance is no guarantee of future results. It is not possible to invest directly in an index.
Active management is the use of a human element, such as a single manager, co-managers or a team of managers, to actively manage a fund’s portfolio. Active management strategies typically have higher fees than passive management.
Alpha measures a fund’s risk adjusted performance and is expressed as an annualized percentage.
Bloomberg High Yield Municipal Index covers the high yield portion of the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, insured bonds, and pre-refunded bonds.
Bloomberg U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities.
The de minimis rule states that if a discount is less than 0.25% of the face value for each full year from the date of purchase to maturity, then it is too small (that is, de minimis) to be considered a market discount for tax purposes. Instead, the accretion should be treated as a capital gain.
This material contains the opinions of the MacKay Municipal Managers™ team of MacKay Shields LLC but not necessarily those of MacKay Shields LLC. The opinions expressed herein are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and opinions contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Any forward-looking statements speak only as of the date they are made and MacKay Shields assumes no duty and does not undertake to update forward-looking statements. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of MacKay Shields LLC. ©2022, MacKay Shields LLC. All rights reserved.
MacKay Municipal Managers is a trademark of MacKay Shields LLC.
MacKay Shields LLC is a wholly owned subsidiary of New York Life Investment Management Holdings LLC, which is wholly owned by New York Life Insurance Company.
“New York Life Investments” is both a service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company. Securities are distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
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