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The municipal bond market has changed | Has your portfolio adapted?
Investing in municipal bonds has become more complicated in recent years.
Understanding the dynamics of the market may help investors evaluate the need for actively managed municipal bond solutions.
Although the markets change, your investment goals don’t.
Get started in three steps:
- Understand the environment
- Identify portfolio needs
- Evaluate solutions
1. Understand the environment
The best performing areas of the municipal market change over time
Where to be positioned across the credit spectrum and yield curve varies depending on the market environment. Actively evaluating a wide range of bonds through extensive credit research and yield curve analysis may help exploit market inefficiencies and manage risk, enhancing return potential.
Supply trends may reduce investor access to tax-exempt municipal bonds
With changes brought about by the Tax Cut and Jobs Act of 2017, municipalities are no longer able to offer advance refunding by issuing new tax-exempt bonds. As a result, tax-exempt municipal bond supply has been outpaced by bond maturities and calls.
Bonds are not created equal — even when their ratings are the same
Bonds can share a credit rating, but show a wide yield range. Yields of A-rated bonds with 5-year maturities in the chart below range from 0.9% to 2.8%, making it difficult to assess the credit risk of each bond. Investment managers research extensively to determine if a higher-yielding bond compensates an investor adequately for risk.
Individual investors are at a pricing disadvantage
There is no central location like an exchange to trade municipal bonds, which can make it challenging for investors to obtain the best prices. Buying and selling bonds is generally more expensive for individual investors who trade in smaller blocks of bonds than for institutional investors that buy and sell in bulk.
2. Identify portfolio needs
Portfolio reviews offer an in-depth analysis of your municipal bond holdings and an action plan to get the most out of your portfolio. To get started, ask your financial professional about a portfolio review.
We look at your municipal bond holdings in a confidential setting, reviewing:
- Does your portfolio match your investment style?
- How many bonds do you own — and what did you pay for them?
- Do you know your portfolio’s sensitivity to interest rate risk?
- Are you capitalizing on bonds that could provide higher income?
- Could you benefit from customizing certain aspects of your portfolio?
Once we know your goals and municipal bond holdings, we assess:
- Credit quality
- Investment style
- Interest rate risk & volatility potential
Portfolio transition analysis
This enhanced feature outlines which bonds to hold, review further or sell when converting the portfolio to a managed account.
Discuss & deliver
We provide an in-depth explanation of our analysis and results, including strategies for a portfolio that matches your needs, capitalizing on:
- Our ability to buy bonds in bulk, with the potential for higher investor income
- A focus on bonds with higher coupons, which may return cash flow faster with less interest rate risk
- An industry-leading credit research team that continuously monitors the market so you don’t have to
- Portfolio customization options based on a variety of factors, including credit quality, duration, tax considerations and income needs
3. Evaluate solutions
As you review your portfolio with your financial professional to discuss investment goals and asset allocations, consider actively managed and customized municipal options from Nuveen.
|Separately managed account||Mutual fund||Closed-end fund|
Individually managed portfolios customized to the account holder. Investors own the securities.
Daily pricing and liquidity with lower investment minimums. Investors own shares of the fund.
Exchange-traded with intra-day pricing determined by the market. Investors own shares of the fund.
|Intermediate term ESG|
|Short duration high yield|
|Strategic municipal opportunities|
There is no guarantee that any of the strategies will achieve their stated objectives. There are risks inherent in any investment and these risks should be carefully considered before investing. Not all products are available at all firms. Please check with your firm for availability.
Separately managed accounts, open-end mutual funds and closed-end funds are different types of investment vehicles with different expense structures and different inflows/outflows and distribution requirements. Income may be subject to state and local income taxes. Capital gains, if any, will be subject to capital gains tax.
Leading the way in municipal bonds
Since 1898, Nuveen has been financing essential municipal bond projects and building lasting value for investors. This municipal bond heritage is reflected in the way portfolios are managed today.
- 122 Experience A rich heritage spanning 122 years remains focused on relative value, principal growth and tax-aware investing.
- 24 Research As one of the industry’s largest credit research teams, 24 analysts averaging 19 years experience are dedicated to municipal investing.
- $184b1 Presence Market power and institutional pricing provide an advantage when evaluating and purchasing bonds.
Access municipal expertise with an industry leader
- #1 Separately managed accounts2 municipal market share
- #2 Open-end funds3 municipal market share
- #1 Closed-end funds4 municipal market share
- 5 2020 Lipper Best Fund Awards from Refinitv5
It’s not what you earn, it’s what you keep.®
Investment professionals and assets under management as of 31 Dec 2019.
1 As of 31 Dec 2019. Nuveen assets under management (AUM) is inclusive of underlying investment specialists.
2 Source: Cerulli Associates, The Cerulli Report, U.S. Managed Accounts 2019. Data as of 31 Dec 2018, most recent data available.
3 Nuveen, Morningstar Direct as of 31 Dec 2019. Based on total net assets of U.S. open-end funds for the Nuveen Family of Funds and the TIAA-CREF Funds, excluding exchange-traded funds, money market funds and fund of funds.
4 Source: Nuveen, Morningstar Direct as of 31 Dec 2019. Represents the total net assets of all U.S. closed-end funds in the municipal bond category.
5 Nuveen was awarded 2020 Lipper Best Fund Awards from Refinitiv for delivering consistently strong, risk-adjusted performance for Class I shares over the 3-, 5-, or 10-year periods ending 30 Nov 2019. See nuveen.com for more information about the five municipal bond funds that received the awards.
In calculating the awards, Lipper considered funds registered for sale in the United States with at least 36 months of performance as of the end of the calendar year of the respective evaluation year. Classification averages are calculated with all eligible share classes for each eligible classification. The calculation periods extend over 36, 60, and 120 months. The highest Lipper Leader for Consistent Return (Effective Return) value within each eligible classification determines the fund classification winner over three, five, or ten years. A detailed awards methodology can be found at lipperfundawards.com.
Class I Shares have no sales charge and may be purchased only by specified classes of investors. Other fund share class purchases may be subject to a front-end sales load. The total number of funds in a Lipper award classification may include multiple share classes of a single fund.
Past performance is no guarantee of future results. Funds considered in the Lipper Awards may have experienced negative returns during or since the rating period.
Lipper Fund Awards from Refinitiv, ©2020 Refinitiv. All rights reserved. Used under license.
Alternative Minimum Tax (AMT) is the federal income tax regime in which the taxpayer will pay the “greater of” (a) the taxpayer’s “regular” federal income tax or (b) the “alternative minimum” tax determined by adding normally deductible tax preference items back into adjusted gross income. If the alternative income tax calculated by this method is higher than the regular tax liability, the regular tax and the amount by which the AMT exceeds the regular tax are paid. The S&P Municipal Bond Index is a broad, market value-weighted index that seeks to measure the performance of the U.S. municipal bond market. Yield is the rate of return on an investment expressed as a percentage.
The comments and statements made are based solely upon the opinions of Nuveen Asset Management and the data available at the time of publication, which may change without notice. There is no assurance that any predicted results will actually occur. Certain information was obtained from third-party sources, which we believe to be reliable, but is not guaranteed.
Institutional trade execution applies primarily to municipal bond trading as part of ongoing account management and generally does not include sales of legacy securities contributed to new or existing accounts or in connection with termination and liquidation instructions. Nuveen Asset Management, LLC (“NAM”) seeks to expeditiously and efficiently effect sales of legacy securities contributed to new or existing accounts or in connection with termination and liquidation instructions, generally by directing the execution of sale to the relevant broker-dealer/custodian designated by the client’s managed account program, subject to program limitations. Primarily due to the time constraints and lot sizes applicable to these transactions, and because the full range of trading techniques is generally not available (including aggregation), the prices received in these transactions may be less favorable than the prices that could be attained for sales of securities selected by NAM as part of ongoing management. Clients always reserve the right to fund accounts with cash as keep any securities in their accounts upon termination of services.
Portfolio review report/portfolio transition analysis
The report summarizes certain information regarding a prospective client’s pre-existing holdings based on data provided by the prospect and/or its financial professional and third party sources. The holdings and characteristics of an actual account managed by Nuveen Asset Management may vary materially from the prospect’s current holdings.
The Portfolio Transition Analysis does not reflect, establish or evidence an advisory or fiduciary relationship between Nuveen Asset Management and the prospect; is not based on the financial status, investment objectives, tax situation, or needs of a specific client; and is not and should not be relied upon as investment advice that should be independently relied upon by the prospect or their financial professional. An advisory or fiduciary relationship between Nuveen Asset Management and the prospect requires the execution of an investment advisory agreement. Nuveen Asset Management reserves the right to take actions that differ from the analysis based on its then-current investment advice, market conditions, and client specific information.
A word on risk
An investment in any municipal portfolio should be made with an understanding of the risks involved in investing in municipal bonds, such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. Clients should contact their tax advisor regarding the suitability of tax-exempt investments in their portfolio. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on state of residence. Income from municipal bonds held by a portfolio could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a bond issuer.
Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen, LLC.