Objective
The Municipal Bond Strategy focuses on optimizing after-tax portfolio outcomes for tax-aware investors. The strategy does this by leveraging Payden's institutional background and resources and its extensive experience managing municipal bonds and actively managing exposures to interest rates, yield curve, and credit sectors.
Portfolios utilize a multisector approach that periodically incorporates high-quality taxable bonds (taxable municipal and U.S. Treasuries), which enhances our ability to manage downside risk, reduce volatility, and preserve liquidity.
The strategy can be tailored to accommodate varying levels of risk tolerance, marginal tax rates, and tax domicile.
Where Philosophy Meets Practice
Payden's core philosophy for managing municipal bond strategies rests on three key beliefs: tax-exempt is not always optimal, municipal markets are inherently inefficient, and alpha can be consistently earned through active management.
Our investment process begins with a firmwide perspective on potential macroeconomic scenarios and the subsequent impacts on interest rates, credit fundamentals, and policy decisions. An assessment of these outcomes then informs portfolio decisions around the appropriate levels of interest rate and credit exposure. Those views are then combined with a bottom-up credit process that drives security selection through fundamental credit research, relative value analysis, and an assessment of structural components such as coupon and call options that contribute to the expected performance of each security.
Incremental portfolio decisions are rooted in pragmatic assessment of relative value and risk management and incorporate incremental tax implications. Disciplined risk sizing, liquidity screens, and the active management of capital gains/losses round out the approach to help deliver risk-adjusted performance without compromising credit quality, transparency, or tax efficiency.
Interest Rate Risk: As with most portfolios that invest in debt securities, the income on and value of the portfolio will fluctuate along with interest rates. When interest rates rise, the market prices of the debt securities the portfolio owns usually decline. When interest rates fall, the prices of these securities usually increase.
Investment returns and principal value will fluctuate, so investments, when sold, may be worth more or less than their original cost. Investing in the municipal securities market involves certain risks. The amount of public information available about municipal securities is generally less than that for corporate equities or bonds. Income from municipal securities may be subject to the Federal alternative minimum tax.
The information presented is not intended as professional tax, legal, or financial advice. Please consult your tax, legal, and financial adviser to review your specific circumstances.
