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Opinion: Making sense of the turmoil in the muni market
Thanks for posting the article on munis. It covers how to determine which offers the better investment value ... muni's, treasuries, or corporates? And, for me, cash as well.
Muni's are a part of my diversified income sleeve and I can hold up to about an 8% to 10% weighting in them. I have one more buy step to make before they (FLAAX) will be at full weight within the sleeve. Currently, FLAAX is 6.5% below its 52 week high and offers value, from my perspective, if purchased in the near term. FLAAX has gained 1.5% over the past 30 days. In comparison, one of my money market mutual funds, PCOXX, has returned a mere 0.04%. A couple of my multi sector income funds (JGIAX & LBNDX) that hold a large percentage in corporates has returned better than 3%. And, for the sleeve as a whole about 2.4% while it's more aggressive cousin, my hybrid income sleeve, is around a return of 4%.
From a yield review and since there is a tax advantage for FLAAX being a muni fund vs JGIAX & LBNDX which are taxable funds this puts FLAAX & LBNDX about even with a slight yield advantage to JGIAX after taxes are considered.
Looking back over the past five years the best performing fund within my income sleeve has been ... you guessed it ... FLAAX.
For me, on a risk adjusted basis muni's are currently offering up good value and there is space within the sleeve to add more, which I plan to do.
@Old_Skeet- We hold a pretty large amount in Schwab's SWKXX muni fund. Given COVID's terrible tax hit to various government entities, do you consider this to be a significant risk factor for this type of fund? Thanks- OJ
Certainly, there is more risk in investing in most everything given COVID 19. Take everything from equity to fixed. If companies can't progress and produce earnings then they can't continue to employ. If companies can't employ then those that would be employed can't pay taxes to local, state and federal governments. In my city, sales tax revenues are way down. One of the things my local government has done, thus far, is to cut some services through the temporarily eliminating yard waste collection and other things plus drawing on their rainy day reserve fund. Currently, my local government says there will not be a property tax rate increase due to COVID 19. I'm not one that would bet on this as other things could cause a property tax rate increase.
With this, I'm thinking muni's are as safe (perhaps safer) than most corporate bonds and equity offerings. As, I stated above, muni's account for about 8%, to no more than 10%, of my income sleeve. And, my income sleeve carries a target weight of 15% within my overall portfolio. My hybrid income sleeve carries a target weight of 25%. Combined, this puts me at a 40% targeted weighting for the income area of my portfolio.
@Old_Joe, fwiw, here is a straightforward easy to understand link from a site bee mentioned as one of his/her go to's. In it, Tom Madell's appraisal is that he considers munis risky. Also a much lesser fwiw opinion, I do too.
@MikeM: Hi Mike- that link didn't work, but this one seems to be OK.
Madell is evidently opinionating on owning Muni bonds directly- I'm thinking that the Schwab fund managers should have the smarts to adjust their portfolio to minimize the risk of municipal defaults.
"For me, on a risk adjusted basis muni's are currently offering up good value and there is space within the sleeve to add more, which I plan to do.".
I'm catching-up with this thread. I just checked my own stuff. I'd have thought that there'd be more munis within my stuff, but: PTIAX 26.42% is in munis, and the fund is less than 9% of my total. OTHERWISE, M* shows me that PRSNX holds .52% (21.22% of total) and RPSIX holds just .01%. (27.26% of total.)
SURPRISE! And of course, as soon as I move to deliberately go after more munis, they'll tank. I continue to take monthly baby-steps, dollar-cost-averaging into PTIAX. I can't see WHEN I'll ever cut that off...
As someone who invests mainly in bonds based on risk/reward + momentum, HY Muni is by far my largest asset for several weeks already. I don't argue with markets and trends I just follow them.
Comments
Thanks for posting the article on munis. It covers how to determine which offers the better investment value ... muni's, treasuries, or corporates? And, for me, cash as well.
Muni's are a part of my diversified income sleeve and I can hold up to about an 8% to 10% weighting in them. I have one more buy step to make before they (FLAAX) will be at full weight within the sleeve. Currently, FLAAX is 6.5% below its 52 week high and offers value, from my perspective, if purchased in the near term. FLAAX has gained 1.5% over the past 30 days. In comparison, one of my money market mutual funds, PCOXX, has returned a mere 0.04%. A couple of my multi sector income funds (JGIAX & LBNDX) that hold a large percentage in corporates has returned better than 3%. And, for the sleeve as a whole about 2.4% while it's more aggressive cousin, my hybrid income sleeve, is around a return of 4%.
From a yield review and since there is a tax advantage for FLAAX being a muni fund vs JGIAX & LBNDX which are taxable funds this puts FLAAX & LBNDX about even with a slight yield advantage to JGIAX after taxes are considered.
Looking back over the past five years the best performing fund within my income sleeve has been ... you guessed it ... FLAAX.
For me, on a risk adjusted basis muni's are currently offering up good value and there is space within the sleeve to add more, which I plan to do.
OJ
Certainly, there is more risk in investing in most everything given COVID 19. Take everything from equity to fixed. If companies can't progress and produce earnings then they can't continue to employ. If companies can't employ then those that would be employed can't pay taxes to local, state and federal governments. In my city, sales tax revenues are way down. One of the things my local government has done, thus far, is to cut some services through the temporarily eliminating yard waste collection and other things plus drawing on their rainy day reserve fund. Currently, my local government says there will not be a property tax rate increase due to COVID 19. I'm not one that would bet on this as other things could cause a property tax rate increase.
With this, I'm thinking muni's are as safe (perhaps safer) than most corporate bonds and equity offerings. As, I stated above, muni's account for about 8%, to no more than 10%, of my income sleeve. And, my income sleeve carries a target weight of 15% within my overall portfolio. My hybrid income sleeve carries a target weight of 25%. Combined, this puts me at a 40% targeted weighting for the income area of my portfolio.
http://funds-newsletter.com/may20-newsletter/may20.htm
Madell is evidently opinionating on owning Muni bonds directly- I'm thinking that the Schwab fund managers should have the smarts to adjust their portfolio to minimize the risk of municipal defaults.
Thanks for your input- stay SAFE back there.
OJ
I'm catching-up with this thread. I just checked my own stuff. I'd have thought that there'd be more munis within my stuff, but:
PTIAX 26.42% is in munis, and the fund is less than 9% of my total.
OTHERWISE, M* shows me that PRSNX holds .52% (21.22% of total)
and RPSIX holds just .01%. (27.26% of total.)
SURPRISE! And of course, as soon as I move to deliberately go after more munis, they'll tank. I continue to take monthly baby-steps, dollar-cost-averaging into PTIAX. I can't see WHEN I'll ever cut that off...