Individual Bond Portfolios Contrast Record Fund Outflows


JUD HENNESSY: The municipal bond market today is dominated by institutions, large insurance companies and banks are an important part of the municipal bond market. Tax-free municipal bond funds and ETFs have become a much larger percentage of the municipal market over the years.

Wealthy investors who previously were sold individual bonds for their portfolios are now becoming more accustomed to purchasing funds and ETFs for their municipal fixed income needs.

In addition to the funds, separate account managers like Genoa Asset Management are now playing a greater role in the municipal bond market.

Last month, investors withdrew $1.4 billion from tax-free bond funds, the most since April of 2020, which was the height of the panic from the COVID pandemic. When the funds in ETFs do get these redemptions from investors, they are forced to sell bonds into an already weak market to make sure the cash is available.

Regardless of the conditions of the market, fund managers must sell to cover their withdrawals.

When this happens, all of the fund investors are affected by the disruption of redemptions.

Unlike mutual funds, separate accounts, or sometimes referred to as SMA are not directly impacted by other investors’ decisions.

If a client chooses to liquidate their portfolio, just the assets of that account are affected.

Long-term investors will have fluctuations in their portfolios but not necessarily suffer the gyrations of selling into a weak market or conversely chasing a strong market to be fully invested.

At Genoa, we actively manage our client portfolios to have the ability to pivot as market conditions change.

We can capitalize on market conditions by bidding on liquidation lists at levels we think make sense for our clients. We can also bid on smaller lots that fit specific account needs.

Our ability to customize client portfolios, will there be specific state requirements or scheduled distributions, is another advantage individual municipal bond portfolios have over open-end mutual funds and ETFs.

At Genoa, we feel that owning individual bonds that are actively managed and customized to the needs of the client is an appropriate strategy for your fixed income needs.

This is Jud Hennessy, Director of Portfolio Management at Genoa Asset Management speaking with you.

Thanks for listening.


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