HOW IS THIS STRATEGY DIFFERENT FROM THE MUNICIPAL LADDER – INTERMEDIATE STRATEGY?
The Intermediate Value strategy differs from the Ladder strategy in a few ways. For instance, the Intermediate Value strategy’s main objective is to provide returns in excess of that of a standard intermediate-term portfolio while the Ladder strategy’s objective is to provide a predictable level of income. * To accomplish the primary goal, our team uses in-depth and offensive research to identify “hidden gems” — callable bonds and credits that we believe are overlooked and undervalued in the municipal bond market; in contrast, our Ladder portfolios invest in bonds with more straightforward structures and broadly recognized credit quality. In addition, portfolios managed under our Intermediate Value strategy are of both a 1 – 8 year ladder and callable bonds with maturities extending out to 15 years, whereas portfolios managed under our Ladder strategy are typically comprised of almost 100% bullet bonds.
WHY DOES THIS STRATEGY HAVE A HIGHER VOLATILITY THAN THE MUNICIPAL LADDER – INTERMEDIATE STRATEGY?
In order to identify bonds that are mispriced due to inherent structural pricing inefficiencies in the market, we may target slightly longer effective duration in the Intermediate Value strategy than we do in the Municipal Ladder – Intermediate strategy. In an upward-sloping yield curve environment, longer duration allows for capturing higher yield, which in turn, generally leads to higher returns, as the investor is rewarded for assuming additional risk.
WHY DOES THIS STRATEGY HAVE A HIGHER YIELD THAN THE MUNICIPAL LADDER – INTERMEDIATE STRATEGY?
There are several reasons this strategy generally has higher yield than the Municipal Ladder – Intermediate strategy does. One of the reasons is that the slightly longer effective duration mentioned above often leads to additional yield, again, due to the added risk assumed with longer duration targets. More significantly, the primary objective of this strategy is to uncover relative value (i.e., returns) in excess of that of a standard intermediate-term portfolio. * Because this is meant to be a buy-and-hold strategy, however, Intermediate Value does not offer the same level of liquidity nor does it offer as low of volatility as the Municipal Ladder – Intermediate strategy does.
For information about strategies for which you can choose your targeted maturity range, please compare strategies.
DO YOU HOLD BONDS TO MATURITY?
We follow a disciplined approach of selling bonds when their maturity falls below one (1) year, because doing so offers key advantages. Otherwise, barring any credit issues, we generally hold bonds to maturity.
HOW DOES THIS STRATEGY COMPARE TO YOUR OPPORTUNISTIC VALUE STRATEGY?
For both our Intermediate Value and Opportunistic Value strategies, our team purchases what we consider to be “value securities” — for Intermediate Value, this means bonds that we believe to be mispriced and offer a resulting opportunity to capture excess yield, while for Opportunistic Value this additionally refers to investment grade bonds with obligors (i.e., the entities responsible for repaying principal and interest on a bond) that may be lesser known within the municipal bond market but that still have solid credit quality. The primary differences between these two (2) strategies, however, lie in their duration and approach to investment.
With Intermediate Value, duration is somewhat less flexible than it is with Opportunistic Value because portfolios managed under the former strategy are comprised of both a 1 – 8 year ladder and callable bonds with maturities extending out to 15 years, while still maintaining an overall intermediate term. In contrast, duration is completely flexible for Opportunistic Value because we are willing to target the portions of the yield curve where value is found, which changes over time.
Portfolios managed under our Intermediate Value strategy are fully invested following a new account’s initial investment period, which is typically within a couple of months. Full investment for portfolios managed under our Opportunistic Value strategy, however, may take longer to reach, depending on market availability of bonds that meet our yield targets.
CAN INTERMEDIATE VALUE PORTFOLIOS BE CUSTOMIZED BY STATE?
Investors residing in California and New York can optimize tax efficiency by choosing a California or New York state-specific Intermediate Value portfolio, respectively. In consideration of clients’ best interests, we only purchase bonds with high-quality credit profiles that adhere to our strategy objectives. For this reason, other state-specific options are not available given that we do not see sufficient availability of attractive bonds that fit our investment criteria for this strategy while supporting portfolio diversification.
To learn more about how we can customize portfolios to meet investors' specific investment objectives, please contact our Advisory Services team by calling (858) 436-2200 or by emailing