Opportunities are currently prevalent in the fixed income market. Well known economist, Nouriel Roubini, recently jumped on the bandwagon predicting widespread municipal defaults. Like Meredith Whitney, he does not name individual issuers or provide quantitative evidence backing his claims. With all of these naysayers impacting markets, professional money managers have been finding excellent values, and jumping on them.
The municipal marketplace is very unique. What may impact one issuer, may not impact another. Certain isolated municipalities may be under financial stress, but there are many otherwise healthy issuers. Many municipal bonds are secured by specific streams of revenue, which are legally protected, and cannot be taken by cities, states, or the federal government. With the proper due diligence, tremendous value can be found within the municipal market place, and some professional money managers are seizing the opportunities.
Take, for example, the PIMCO Total Return Fund, the largest fixed income mutual fund in terms of assets under management. The fund’s objective is to maximize total return, matched with preservation of capital. According to PIMCO’s website, the fund recently sold all of its Treasury holdings during the month of February, after Treasuries accounted for 12% of the fund at the end of January. Likewise, the fund has been increasing its municipal bond holdings, largely due to the current values in the municipal marketplace. The largest holding continues to be in mortgage backed securities, as great opportunities in high quality mortgage bonds have been present since the start of the economic downturn.
Investors should continue to be prudent. There are several exceptional opportunities in the fixed income market, but a wise investor cannot discount the fact that some issuers are under financial duress. By performing sound research, and understanding the security behind the payment of the bonds, investors can find great opportunities with fine credit quality. Alamo Capital has the resources to explain the credit quality behind the securities you own and the securities you are interested in purchasing. Contact your Alamo Capital representative today to find exceptional solutions to your investment needs.
Investment Information Coordinator
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