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Lead-Lag Live
Jay McAndrew and Nicole Vance on Municipal Bond Strategies, Chicago's Financial Insights, and Tax-Exempt Investment Opportunities
Unlock the secrets of successful municipal bond investing with insights from industry experts. Join us as we promise to transform your understanding of the municipal bond market, featuring critical insights from Jay McAndrew, Columbia Threadneedle's ETF maestro, and Nicole Vance, a dedicated client portfolio manager. We tackle the financial intricacies of Chicago, challenging conventional ratings and exploring the impact of fiscal and monetary shifts post-election. Nicole shares her personal journey into the world of fixed income and municipal bonds, providing a passionate perspective on the opportunities and challenges within this sector.
Our conversation extends to the strategic intricacies of municipal bond investments, emphasizing the significant role of credit research and the seasoned approach needed in navigating this market. Explore the allure of tax-exempt investments amid political changes and tax reforms, and discover the potential sectors ripe for investment, such as utilities and charter schools. With a focus on evolving strategies, we highlight the market's shift towards mutual funds and ETFs, offering insights into high yield municipal funds and the unique prospects of the municipal market curve. Jay McAndrew further enlightens us on the benefits of the intermediate ETF approach, ensuring you're well-equipped to harness the full potential of municipal bond investing.
DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of Columbia Threadneedle and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
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First thing I'll say is credit research is incredibly important. We have a team of credit research analysts. I think a very good example actually is what's going on in Chicago. So if you look at Chicago right now, most rating agencies actually have Chicago as investment grade. Single A minus, I think, is what Fitch has it. If you look at how our team looks at Chicago, we actually view it as below investment grade. So, chicago, there's been a number of issues. A lot of it has been due to mismanagement, financial mismanagement in particular. Chicago treated this COVID stimulus like it was going to be something that would last forever and they also have pension debt that is five times their annual budget.
Speaker 2:I'm very much excited for this conversation because we're going to be talking about a topic that most people tend to not find that exciting, but actually that's maybe exactly why it's worth having this discussion. This conversation is sponsored by Columbia Threadneedle. They're one of my clients on the ETF issuer side. I had a great, great podcast with Jay McAndrew last month talking about some really good ideas, which I think now especially, are very relevant. Again, the focus on this is going to be with Muniz, and we have a new guest in Nicole Vance, who's going to be talking all kinds of interesting things as far as space goes. So, with all that said, my name is Michael Guy, publisher of the Lead Lag Report. Joining me for roughly 35, 40 minutes are Jay McAndrew and Nicole Vance Jay, I'm going to hand it off to you first for an introduction on your background and this little firm called Columbia Threat Needle.
Speaker 3:Great. Thank you, michael. I know that we've covered my background in the past. Let's just say I'm the ETF guy at Columbia Threadneedle. For those that don't know Columbia Threadneedle, we are a $650 billion plus asset management firm based in Boston, global presence in 17 different countries. A third, or about $240 billion, of the assets that we manage are in fixed income. Now we do have a lot of taxable fixed income with a tremendous amount of expertise. We have close to $15 billion in tax exempt or municipal securities.
Speaker 3:And just a little bit on why I think this conversation is relevant right now.
Speaker 3:Number one we've just had an election, so once every four years, and this time we're going to get a change in parties, so maybe a change in direction relative to fiscal and monetary policy.
Speaker 3:And then, when you just take a look at the municipal landscape, in August through September we had excuse me, through June through September, we had consecutive months of municipal inflow over $5 billion a month and that hadn't happened for over three years. And in October we actually had about $8 billion flow into the municipal space and it was pretty widely dispersed. We saw about $5.5 billion come into the intermediate space. We saw about $1 billion into the long-term space and another billion dollars into municipal high yield. So investors are deciding to reenter the asset category, maybe now that we have more clarity on what the future could bring, and our goal today is to share with you some of our insights on the marketplace and the sector, as well as conversations we have investors about municipals throughout the course of the year. So I'm joined, as you said, by my partner and client portfolio manager on the municipal team, nicole Vance. We look to share some insights with you.
Speaker 2:Awesome, nicole, introduce yourself also. There's actually a lot of good questions that are coming up in my mind as far as just munis, and maybe if some of those flows are coming from investors that are still worried about treasuries, so instead they go into munis. But, nicole, introduce yourself as far as your background, what do you do?
Speaker 1:Yeah, absolutely so. Like Jay mentioned, I'm a client portfolio manager on our tax exempt fixed income team. I started at Columbia Gosh I guess it's almost been 10 years ago now and I actually started in the sales side of the organization. So I started as an internal wholesaler, then an external wholesaler. I was covering both wire houses and the independent channel, so working with financial advisors from firms like Merrill Lynch to Morgan Stanley, ameriprise, raymond James, and really on the sales side it was partnering with advisors on everything from product positioning to outlook, to business building ideas and so much more.
Speaker 1:And then throughout that process I had to actually obtain my MBA from the University of Florida and while I was doing that I discovered I really was most interested and most passionate about fixed income. So that's kind of what led me over to the investment team. Really, the client portfolio manager role is kind of the best of both worlds, where I get to work with our incredible sales team financial advisors that we work with, work with our incredible sales team financial advisors that we work with, but also I'm technically on our municipal team, so I get to sit with and speak to our portfolio managers, our analysts, our traders on a daily basis and do everything from portraying strategy to positioning what we're thinking and, jay, I think you said you're kind of the ETF guy, so I would guess I would classify myself as the muni girl but really getting to kind of be the face of our strategies on the municipal side.
Speaker 2:All right. So before we get into the why now, I think when I myself think about munis, I think it attracts an audience generally of high net worth, maybe family offices, accredited investor, not sort of really kind of a retail type of buyer. Am I wrong on that in terms of sort of the appeal of munis, in terms of the type of target audience that I'm thinking through?
Speaker 1:Yeah, so 70% of the owners of munis are actually traditionally retail-based investors. So everything from what you mentioned more higher net worth clients to kind of mom and pop investors and I'm sure we'll get into kind of our market and really the inefficiencies there but it really is a very broadly held market and I think the one thing that we really try to portray is it's not an asset class that is just for the rich. New needs make sense in a lot of scenarios, especially depending where you are in terms of credit or where you are in terms of duration, and especially with some of the yields you're getting today and the tax equivalent yields, it's an attractive market to a lot of investors.
Speaker 2:Jay, you had mentioned the flows. Again, this may just relate to the why now, but if there's a desire for a high tax equivalent yield, I thought the expectation was that a Trump administration meant that taxes would maybe drop, which maybe actually would not cause so much demand for munis on a relative basis. It helps square that circle because I think that's an interesting thing to think through.
Speaker 3:I would hand it over to Nicole. I think the relevance is that she just came back from the municipal offsite. They were able to digest what happened at the beginning part of November and have some insights on that.
Speaker 1:So, nicole, yeah, no, it's. I mean it's a phenomenal question. It's definitely the number one question we're getting from advisors right now, and it is. It is very true. I mean there certainly may be changes to the municipal market. I'll start by saying you know, first things first. We do not see the tax exempt status of municipals being repealed. So, unfortunately, taxes are always going to be here and there always will be buyers in the municipal market.
Speaker 2:I want you to know the fact that you said taxes will always be here. I just saw a drop off for people.
Speaker 1:I wish taxes were not here, but unfortunately that's not the case, so there will always be buyers. Another thing that I think is pretty interesting and I'm sure we'll get into credit and how tight spreads are but another thing that we actually don't think is in the crosshair is AMT bonds. This space actually has a little bit of bipartisan support. We do think that AMT is likely to be extended. If you look at the number of filers today, it's right around 200,000. If that were to be reversed to pre-2017 levels, that would actually be closer to potentially 7 million. Again, we don't think that there will be significant changes in that manner, but we've actually used that as an opportunity to find some areas that maybe our peers or competitors or traditional retail investors might not have access to.
Speaker 1:So the first area is these AMT bonds, and we hold those in must and I'm sure Jay will talk about kind of the smart beta approach of the strategy. But we do hold AMT bonds in many of our strategies, and in must in particular. Actually, at our offsite a few of our traders were talking about double A and single A rated airport AMT bonds. Compared to their non-AMT counterparts, we were actually seeing about a 60 to 70 basis point pickup of yield in those AMT bonds, specifically in the intermediate portion of the curve. If you look at the intermediate portion of the curve, it tends to be a very heavily driven environment by SMA buyers. Smas make up over a fourth of the flows. Smas traditionally don't buy a lot of AMT paper, so kind of coming back full circle.
Speaker 1:There are still some phenomenal areas of opportunity that we've been able to find from things that we think are potential implications from the election. If you look at certain sectors I mean tariffs are a good example there might be some negative effects on some of these ports and transportation subsectors, but other sectors including utilities, charter schools, oil producing states they're certainly likely to benefit from these potential looser regulatory changes. So we certainly do expect to see changes in our market. But the nice thing about active management and being such a large shop at Columbia Threadneedle is we really are able to capitalize on those changes.
Speaker 3:That's great and, nicole, one of the things that we've focused on educating our team about is that there's a seasonality in municipals relative to issuance, and the election actually played some role in that. So talk a little bit about supply and demand, seasonality and maybe what impact. You know what we thought or what we knew to be an upcoming election, what role that played and then what might be some of the technical aspects of the muni environment that you're looking at now.
Speaker 1:That's another great question. Typically in an election year, you tend to see supply front loaded. Supply has been a huge story for our market. If you look in aggregate, supply is up about 40% versus its five-year average, so there's been a big influx of supply. One again, you tend to see that front-loaded in an election year. Two, we're coming off of some very heavily subsidized pandemic years where we've seen some muted issuance, and three, issuers are becoming much more comfortable with this onset of a rate cutting cycle. So if you were to tie all that together, supply really reached we think it'll probably reach about $480 billion On a net level. It'll actually be the largest supply year we've seen since 2007. So, again, very, very heavy supply year. But the nice thing is it's been met with significant demand.
Speaker 1:You look at years like 2022 when municipal saw massive outflows. You look at years like 2023 when flows were positive, but slightly. This year we've actually, year to date, have seen that flows about $32 billion in the fund space, $20 billion of that in mutual funds, $12 of that in ETFs and on a go-forward basis, we do expect to be in a very strong technical shape and technical environment through year end. If you look at projections for November. I know we're almost through the month, but they're far more supportive than what we'd seen in the past. October actually reached over $60 billion of new issuance. That's a lot higher than the typical $40, $42 billion we see on average for that month. So we do think we have some nice tailwinds behind us, but again, that uptick in supply has been met with very exciting demands.
Speaker 2:Let's talk about where we are in the cycle, separate from seasonality, meaning, you know, some will argue that we're in an early bull market, typical bull markets, around five, six years, right for risk on equity, beta, tied assets. Others will argue, well you know, maybe we're due for a recession because the unversion and the lags, you know, kicking in sometime next year, typically do munis. Where in the economic cycle do munis do best? Is the opportunity highest?
Speaker 1:Yep. So opportunity typically is the highest after a tightening cycle. So traditionally when we start to see more of that risk off environment Now I will be I will say there are a few caveats. So one if you look at yield right now it's the best indicator of your future return and starting yield is very, very high. We are certainly in a camp that we are more along the lines of a soft landing. I would say. If you listen to most of the street it's kind of the soft landing, no landing theme Only. Caveat to that is a lot of our PMs say that every hard landing looks like a soft landing at first. So it's very, very difficult to really anticipate exactly what's going to happen in that space. But again, municipals typically are great on a risk-off environment and really give you that buffer, especially if you're going to pair them with some of the riskier asset classes on the equity side. You know large cap, growth, technology, s&p, what have you? Really great volatility dampener.
Speaker 2:Okay, so we're going to get into the role of munis and how to think about it from a portfolio construction perspective. But make the case for why, if you like munis, you should do a fund as opposed to try to do an individual muni bond. I know the answer because there's a lot of muni bonds out there and it's hard to really get good information on the issuances. But make that argument because I think this is where it's important.
Speaker 1:It's a great, great question and typically we have a lot of those conversations with advisors or investors that are looking at getting into either a mutual fund or an SMA in particular. First thing I'll say is credit research is incredibly important. We have a team of credit research analysts. I think a very good example actually is what's going on in Chicago. So if you look at Chicago right now, most rating agencies actually have Chicago as investment grade. Single A minus, I think, is what Fitch has it. If you look at how our team looks at Chicago, we actually view it as below investment grade.
Speaker 1:So Chicago, there's been a number of issues. A lot of it has been due to mismanagement, financial mismanagement in particular. Chicago treated this covid stimulus like it was going to be something that would last forever, and they also have pension debt that is five times their annual. That five times their annual budget. The next major city is right around two and a half times. So they have a budget deficit problem, they have a pension funding problem and we think the rating agencies have been a little bit too lenient on them in that case. So again, we view the credit as below investment grade. That's a really good example, and I mean Chicago is a very, very large city, so tons of debt there. It's a name people know pretty well, but if you're just looking at what the rating agencies have, it might miss the mark on what is really underlying going on on the fundamental on the credit side.
Speaker 1:In addition, trading is incredibly, incredibly important in the municipal market. If you look at the corporate side, there's about 4,000 issuers. If you look at the municipal side, there's over 80,000 issuers, 80,000 unique issuers, and a lot of the deals are smaller sizes. So, especially in an environment like this, yes, we have very heavy supply in certain segments. One segment that has had lower supply is high yield. High yield has been met with relentless demand. I mean a lot of these deals are being 15, 20, 30 times oversubscribed, so it's very hard to get allocations. Even as an asset manager and a lot of the retail side, they typically get the bonds that asset managers pass up on. So high yield in particular, I will say, is an incredibly, incredibly challenging space, solely due from the technical environment, but it's a mix of trying to manage everything from duration to credit. Again, having that credit team behind you and trading in our market is something that is very, very significant as well.
Speaker 2:When I've analyzed different muni bond ETFs on Seeking Alpha, I was always struck by the number of not rated issuances. It kind of goes back to your point about 80,000. It's like, yeah, of course they're not going to rate these very small, esoteric type of issuances. How does Columbia Threadneedle broadly deal with these smaller bonds? It might be mispriced and they're mispriced because nobody's really paying attention to them, but there's no real sort of foundation to really have a sense of how strong the credit quality is or isn't.
Speaker 1:So that's something that we've actually leveraged a lot of technology when it one comes to surveillance of the higher quality segments of our market. If you look at the default rate in AAA, I suppose it's very, very low. So most of our credit analysts are truly spending their time on a lot of those lower quality positions that we're interested in. So, again, our team of credit analysts is phenomenal. We do hold quite a bit of non-rated debt Doesn't necessarily mean that it's high yield. There's a significant number of reasons why an issuer might not have a rating. Sometimes they just don't want to pay for it or take the time. So we certainly capitalize on that at Columbia Threadneedle. But again, it's a very, very challenging portion of our market to not only have access to but also know what you're buying when these issues are so small.
Speaker 2:Jay, I'll go to you just because you're talking to a lot of advisors and I'm sure a lot of advisors are asking your thoughts on what happens now post-Trump and Republican sweep. Anything to suggest that mutis tend to do better under a Republican administration versus a Democrat administration. Anything that we can tie the political leadership to as far as future performance.
Speaker 3:To answer that specific question, michael, to my knowledge, no, we've done a lot of work on how different presidential administrations can impact equity markets, but never on the specifics of muni markets and while I don't have the slides in front of me, it basically is a toss up and I do think that maybe surprising the most is when you have a democratic presidency and a split Congress you actually have the best, you had the best equity returns, but it's not far off and so it's. Yes, there's guidance from sort of the political process, but you know, just like, on the equity side, it's really earnings that drive stock price over time and then that flows down to the underlying fundamentals of the bonds, whether they're taxable or, in the cases of municipalities and toll roads, it's the cash flow that comes through and the taxation. So I don't have any statistics like that. You know I do. You know you talk about. You had mentioned right talking to advisors and impact of that.
Speaker 3:I think to the question you asked earlier about how do I approach the municipal market. All of the advisors that I grew up in the business with for the last 30 years I found have exited, managing their own muties, which was a very profitable way to build a business. They had access. That access to a degree got democratized. They were able to get better diversification through packaged product and whether that packaged product is an SMA, where you have a private portfolio of specific muni bonds for you, or it's in a mutual fund or an ETF, I think the industry has created access to better solutions.
Speaker 3:You know, one of the things we touched on is that flows are back and robust. In the last 12 months, about $42 to $45 billion has come back into the municipal market, 30 of that in active strategies and call it roughly $12 billion in passive strategies. So I think investors are voting with their dollars into packaged products. I do know that we have had some really strong performance like top decile performance, top 1% performance with some of our solutions. Here today, maybe I could ask Nicole to just touch on what's working well in this environment and then maybe we could just have a brief discussion on packaging, because we do offer a number of solutions that might be tailored to investors' preferences. So, nicole, just share with us a little bit about you know what's working in our arsenal and why is it working so well?
Speaker 1:Yeah, and first I would say we're very lucky that we have the opportunity to offer investors mutual funds, etfs and SMAs, so we're not just a fund family. We've seen a significant amount of demand move into the separately managed account side. As I mentioned, we're seeing about 25% of flows today going into SMAs, which is actually kind of throwing off some of the ratios in our market. But a few things that have worked. High yield we have the number one high yield municipal fund on the one year number. It's actually up a little bit over 17% on that one year number. Now, that being said, when I talk about high yield, one of the questions I always get is what are credit spreads like? Spreads on average over the last 10 years have been a little north of 300. Today they're right around 200, actually slightly below 200. And with that, not only are we cognizant of making sure that we're being compensated for the risk that we're taking in that strategy, but we've actually have preferred higher quality high yield and some longer duration high yield. So that's been one of the big attributors to having again our high yield muni fund being first percentile on the one year number.
Speaker 1:Another strategy that is very, very popular at our firm is our strategic municipal income fund. The beauty of that strategy is it manages both credit and duration for you, so you don't have to worry necessarily about where you want to be on the credit spectrum or where you want to be in terms of positioning that strategy. Again, the high yield that it's buying is higher quality high yield and the duration of the fund is a little over nine years. So it's that long end of the curve which is really where we've seen a lot of success. And if you look at the municipal market, after every single tightening cycle it's always the long end that outperforms. So again, that's why we've really held our ground in owning or holding that longer paper that we've owned.
Speaker 1:So those would be two strategies I would say we have a lot of success with. And then two and Jay, I won't steal your thunder on must but also the intermediate space is where most flows in our asset class go. We have an intermediate duration mutual fund, we also have an intermediate duration SMA and we have must, which is an intermediate ETF. So that's another large space for us. But I would say it's really been the intermediate portion and out which is where we'd seen the most success. And lastly, before I turn it over to you, jay, our curve kind of looks like a Nike swoosh, so it's very different than what you're seeing from the treasury curve, which is why the opportunities for us tend to be a little bit longer out, because you're being compensated for taking some of those longer duration positionings.
Speaker 2:This conversation is so good that my computer is glitching, which is why I keep doing this. So let's get into must, because I'm familiar with the fund. I think it's it's a very strong underpinning in terms of the process. But, jay, this is all you. I want to. I want to get into this particular fund that Columbia Threadneedle offers. First of all, explain the composition. How is it constructed? How do you hear other advisors, individuals use?
Speaker 3:it. Thank you, michael, and yes, we'll talk just briefly about the fund, with a couple of highlights, and then talk about positioning within an advisor's portfolio. Just to make everything simple, I know throughout this webcast we've said the word MUST, which is a word, but it's also a ticker symbol. So MUST M-U-S-T the ticker symbol stands for the Columbia Multi-Sector Municipal Income ETF and for those of you that have joined Michael and I in the past, we do talk a fair amount about MUST, and MUST is built a little bit differently.
Speaker 3:If you've heard me before, one of my favorite taglines is that bond benchmarks are bad and that's universal, whether it be on the taxable side or in the municipal realm. And why they're bad is they're built by giving the most exposure to the largest issuers of debt, and in the municipal landscape, the largest issuers of debt tend to be state and local entities that issue general obligation bonds, and because those state and local entities are backed by the taxpayer, they tend to be lower risk and thus produce lower yield. So how does that impact a bond benchmark? Well, on the right-hand side of this slide, you can see two common national indices, both by Bloomberg, and you can see a lot of purple. And that purple 43% to 32% are the government obligations. So, said another way, you get a lot of lower-income-producing state and local general obligation bond exposure and because you have that concentration, because you reward the largest issuers of debt, the converse is also true, that you get little of what yields more. And you can see at the bottom of the right hand two columns. There are areas with healthier yields, both in transportation and healthcare, and what we did is we wanted our passive exposure to look much more like what an active municipal manager is doing in their portfolio. Most active muni portfolio managers do not try and replicate the benchmark, because the benchmark, in our opinion, is flawed. It's flawed because it overweights under-income producing sectors of the market. And when you have credit research facilities that active managers, including Columbia Threadneedle, have, you want to take advantage of that credit research, and that's exactly what we did. So to compare and contrast, anybody who's looking at the slide on the left-hand side can see that we diminish general obligation bonds and we enhance the amount of transportation and healthcare bonds that you have. So, said another way, we like to give you more of what yields more and provide less of what yields less Because, as Nicole hit on, in fixed income.
Speaker 3:A predominance of your return is driven by the income. So we wanted to build just a more thoughtful, a more common sense income chassis. I will just hit on a couple of the other rules or the outcome of this process. Number one must is a passive ETF MUST and it's built like this you always know what you own. You always have 30% exposure to healthcare and high yield bonds that drive your income. That's ballast by what's on the left-hand side shorter, higher quality bonds and in the middle, rather than having a bunch of general obligation bonds, you have revenue bonds to enhance income. So that's just a little bit about must. I will leave on this note or in my comments. We built this using the insights of our active team that Nicole works with.
Speaker 3:Two things that I would note to any investor out there we want it to be a little bit different and not offer a me-too product. If you're out there using a municipal ETF, the first thing we do we do not invest in California bonds, because California as a state tends to have the highest taxes. That creates high demand for California municipal bonds. Higher demand bids up prices and those prices drive down yields and on the left-hand side you can see that at a given effective duration you can find typically a higher yielding non-California bond than you can California. So you know that can also be true with other states like New York and Illinois.
Speaker 3:But we stopped at California because California tends to be the largest weight in most national muni portfolios.
Speaker 3:And on the right hand side you can see it's a drawdown graph and you can see if you can actually identify the small text. It's Puerto Rico and tobacco bonds and you can see that both of them, during times of stress, tend to have higher drawdowns. So that's more volatility. When we were building Must we wanted to be a middle of the fairway type of intermediate national municipal exposure. So we do not invest in any US territories and we do not invest in tobacco bonds. Now I know those tobacco bonds and Puerto Rican bonds I think are doing very well this year. So we've given up a little bit of the upside but from a risk-adjusted standpoint we're very happy with our long-term performance. So that's just a little bit about Must and I think the end is at Columbia. We have a supermarket of thoughtful muni exposures to help investors, whether it be a private portfolio in the form of a separately managed account, whether it be a mutual fund or an ETF, all flavors to suit investors' tastes.
Speaker 2:Nicole, you had mentioned before munis had to do better in sort of risk-off environments. Typically it's supposed to be that long-duration treasuries are the way to play, that we haven't seen that in some time. Maybe the argument for choosing munis over federal treasuries from an allocation perspective, because it seems to me that, oddly enough, maybe munis are a better diversifier now than treasuries are.
Speaker 1:It's something we definitely compete against in our market, especially if you look at muni treasury ratios. I will say, with the massive influx of demand that's actually something that we haven't focused on nearly as much as we have on the past. So I will say SMAs have certainly skewed ratios so we don't really think those are the best indicator of value. We look more at starting yield and it's really the intermediate portion and on is where municipals make a lot of sense because of the tax equivalent yield. Again our curve looks like a Nike swoosh so it's inverted on the very front end which again is very abnormal for our market.
Speaker 1:Traditionally our curve is not inverted but it's very inverted on the front end and then we have a really nice healthy positive slope from there on out. And this is only if you're looking at AAA rate of municipal debt. So this is not even looking at the lower quality debt, but that's where you really see the largest differentiator between treasury yields and from the muni market. I mean, the yield on some of our strategies is north of six and a half percent and that's only with the federal top tax bracket. So there certainly are phenomenal opportunities. Treasuries make a little bit more sense on the front end of the curve just because munis have had so much demand there. That's really kind of drawn down some of the yields. But intermediate and out is really where municipals shine compared to treasuries right now.
Speaker 2:In terms of positioning, allocation size, not investment advice. But, jay, you talked to a whole bunch of FAs. They tell you what they're doing right. So you know, are munis simply sort of a 5%, 10%, 15%, all of a bond allocation? I mean, what do you hear?
Speaker 3:Well, michael, as you know, it's when you talk to so many people, there's lots of different use cases and you know, I think the biggest thing right now is when we look at some of the traditional municipal ETFs and then something that's new and more innovative and more thoughtful comes along and as produce better performance over three and five years. People look for an opportunity to change and it all goes back to a simple foundation that in fixed income, income is a primary driver. So if you have a better income chassis, like must utilizes, you're ultimately going to ultimately hopefully collect more returns over time. And so we're looking at swap out candidates municipal ETFs that are out there. One other use obviously you have a whole bunch of advisors who are starting ETF models as they migrate from mutual fund management and they're looking for new ideas and they want to be able to differentiate themselves and their practice by not using the biggest names from the biggest brands, because it becomes too commoditized and they like some sort of differentiation.
Speaker 3:And the last thing is, you know we have found right, we talked about it there are still some individual muni buyers and there are some financial advisors who use very high quality municipal, separately managed accounts. And when you're doing that, you're getting very high ratings, you're getting potentially lower yields, and so what we've had some advisors do is they say, hey, we'll use an exposure like must, which is much more revenue bond oriented with some smattering of health care and high yield, to be a credit complement to that real high quality core individual bond portfolio. So lots of different ways to use it. Every advisor has their own answer, but I think those would be the three sort of an old guard takeout, just a new initiated position and then finally, a credit compliment to kind of a stodgy municipal position.
Speaker 2:Some final thoughts here before we wrap up. What do you think people retail, even high net worth, or advisors anybody you talk to. When it comes to the community space, what is it that people get most wrong about municipal bond investing? Where's the highest misconception?
Speaker 1:I would say in terms, I would say it's probably more duration positioning in our market, because our market is not as interest rate sensitive as some of the taxable side. Another thing, and it's really predominantly across the board in fixed income, but it's really predominantly across the board in fixed income but it's impossible to time rates. It is very, very challenging to time rates and typically if you wait to get invested until the Fed has really gone along their cutting path and they're deep into their cutting path, at that point you miss a lot of the yield. So that, I would say, is kind of the biggest misconception is when to get in and when to own fixed income. We've actually seen charts where a lot of investors will get in when yields are low and get out when yields are high. But again, that yield is the best predictor of your future total return and right now we have some really exciting juicy yields in our market that are well above where they've been over the last decade.
Speaker 2:So we do find it a phenomenal entry point. Yeah, I always sound that to be amazing. They want yield when there is none. They don't want yield when there is some. Jay, maybe final thoughts on your end as well.
Speaker 3:That would be it. You know it gets. We try and be in the business of where the flow is and because we've seen a dramatic turnaround in the last four or five months and we have more clarity with this new leadership in terms of the president and the Congress, I think there's been, as you've seen, in the stock market, predominantly some exuberance, so that, I think, bodes well for the economy longer term, which creates better health for all of the municipalities and the stock market. Stock market ultimately produces taxes, so municipalities are in great shape and I do think that having some exposure, both from a tax equivalent yield return standpoint and the ability to diversify or fix income holdings, makes a lot of sense. And again, whether it's Columbia, threadneedle or someone else, we've got a plethora of solutions that can help people implement their point of view and help them earn some tax-free money. Best place to learn about must.
Speaker 3:Would be at columbiathreadneedlecom or just Google must ETF and it will likely be the first thing comes up in the search. And other than that, I'm just very happy. I've noticed, michael, that I am wearing like Columbia colors dark blue and light blue and it's like it's like Garanimals came to corporate.
Speaker 2:America. Is that what you're going to wear for our dinner tonight? Are you going to represent Columbia Threadnill?
Speaker 3:I think I'll probably change and be in my typical outfit. I would exactly like you to see me right now.
Speaker 2:Nicole, appreciate your time. Nicole, for those who want to get more of your thoughts and more of their place that you can point them to, Our website is certainly the best place.
Speaker 1:We have insights from not only our municipal portfolio managers and team, but the taxable side, all asset classes as well.
Speaker 2:Appreciate those that watch this live. This will be an edited podcast under Lead Lag Live Again, this conversation is sponsored by Columbia thread. I need to one of my clients, one of the greats in the industry that obviously puts out a lot of very thoughtful research and very strong products, so please learn about must. Thank you to Jay, thank you to Nicole and I will see you next time. Thank you, buddy.
Speaker 3:Yeah, Thank you, Michael. Thanks Nicole.
