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Dislocations Have Driven Muni Investors To Professionals - Thursday, 07/12/2012

  • Alexandra Lebenthal, guest commentator, offers her insight
  • She has seen demand shift from individual bonds to SMAs, mutual funds and ETFs

Muni Nation invited Alexandra Lebenthal, President and CEO of Lebenthal & Company, to provide this week's commentary. Alexandra's grandparents founded Lebenthal as a pioneering municipal bond trading firm in 1925. The firm's tradition was carried on by her father, James Lebenthal, until Alexandra became President and CEO in 1995.

Muni Nation asked Alexandra to identify the most important changes in the municipal market over the past year, and here is her perspective:

Alexandra Lebenthal Photo Recent changes have been significant, perhaps more so than at any other time in my company's long history. The financial crisis of 2008-09 created dramatic dislocations in the market including the demise of major investment firms, the debacle over auction rate securities and the downfall of municipal bond insurance. We believe these events left individuals without a clear investment strategy, and perhaps feeling at a disadvantage in the market.

As a result, we have seen individuals turn their municipal investing activities dramatically toward separately managed accounts, mutual funds and ETFs, as opposed to buying and managing individual bonds. In our opinion, individual investors don't feel equipped to differentiate between today's opportunities. This has put professionals back in a leadership position with respect to managing municipal assets.

The original Lebenthal business model cultivated individual investors and their municipal bond orders. Recent changes have been so great that I question whether that model can succeed in today's market.

 

Municipal Bond Funds Have Become More Prevalent


Muni Chart
Source: Simfund/Strategic Insights as of 12/31/2011.

1Assets under management include all U.S. non-money market municipal bond open-end funds, closed-end funds and exchange-traded funds that invest primarily in municipal securities.

Please note that the information in this post represents the opinion of Alexandra Lebenthal and not necessarily those of Van Eck Global. These opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Global. MUNI NATION is a service mark of Van Eck Associates Corporation. Please note that Van Eck Global offers municipal bond exchange-traded funds. Please see the prospectus and summary prospectus for more information.
 

 

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Please note that the information herein represents the opinion of Jim Colby and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Global. © 2014 Van Eck Securities Corporation. MUNI NATION is a trademark of Van Eck Associates Corporation.

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Any discussion of specific securities mentioned in the commentary is neither an offer to sell nor a solicitation to buy these securities.

Municipal bonds are subject to risks related to litigation, legislation, political change, conditions in underlying sectors or in local business communities and economies, bankruptcy or other changes in the issuer’s financial condition, and/or the discontinuance of taxes supporting the project or assets or the inability to collect revenues for the project or from the assets. Bonds and bond funds will decrease in value as interest rates rise. Additional risks include credit, interest rate, call, reinvestment, tax, market and lease obligation risk. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. Municipal bonds may be less liquid than taxable bonds.

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