MacKay Municipal Managers’ Market Insights for 2020, published in January, noted that historically low yields and tight credit spreads positioned municipal bond investors in uncharted territory. The recommendation was to leverage market knowledge and position portfolios based upon the key attributes of each bond held including structure, liquidity profile, rate sensitivity, and credit fundamentals. It was also noted that investor uncertainty in 2020, a presidential election year, over economic sustainability and stock market performance could lead to volatility. However, based on our belief in improving municipal credit fundamentals and favorable market technicals, we were prepared to be buyers in periods of volatility. During the spring of 2020, the municipal market experienced one of the deepest, swiftest dislocations seen in decades. While we did not foresee the tragic human impact and massive economic slowdown caused by COVID-19, our portfolios were well positioned. Initially, the market was impacted by a liquidity squeeze that was amplified by credit spread widening, as the implications of the abrupt shutdown of the economy became apparent. The thesis MacKay Municipal Managers™ (“MMM”) employs remains intact and is further solidified by the four core pillars of our investment process:
1. Disciplined Security Selection – Strict credit review standards through all markets remains paramount, particularly during turbulent times.
2. Focus on Liquidity – Constructing portfolios that include short-term securities, rated bonds and bonds with a diverse buyer universe are at the core of every portfolio we manage.
3. Commitment to Diversification – Mitigating credit risk through diversification by geography, sector, issuer, credit rating, and yield curve positioning.
4. Flexible and Active Approach – Market volatility creates either risk or opportunity. The flexibility of our portfolios allow the credit research team, our traders, and our portfolio managers to seek out opportunities during market volatility and dislocations.
Read MacKay Municipal Managers' 2020 Municipal Market Insights: Mid-year update here.
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.
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