The oldest house in America specializing in municipal bonds for the individual is back… with two ways to build a municipal bond portfolio. One way is by letting Corinne Smith (opposite) show you how to build your own portfolio.  The other way is by letting us build a portfolio for you and having it managed by the same Greg Serbe (below) who ran the top-ranked municipal bond portfolio for the former Lebenthal Asset Management.

Opting for management is a sign you could be seeking something more from the municipal bond market than just a nice steady tax free income. Let’s face it.  Bonds go up.  And bonds go down.  The investor in a managed account believes, “I’ll do better warding against the ups and down of the bond market with a professional trader doing the buying, selling, holding, trading, rather than trying to anticipate interest rates on my own.”  Needless to say, no guarantees, just a fighting chance.

The retail investor scoffs, “Nobody can predict interest rates,” and recites the mantra, “I don’t buy to trade.  I don’t buy to trade.”  Having declared the intention to hold, the do-it-yourselfer then has to face up to the toughest decision there is in municipal bonds: the Maturity Decision – long versus short. The investor in an actively managed trading account has made his peace with maturity: a 5, 10, 20 year bond is no longer in maturity than the manager wants to hold onto it.  If the manager decides to sell in 2, 5, or 10 years, he will…at institutional spreads for as little as 50-cents to $2.50 or so per thousand (depending on maturity and block size).

For the do-it-yourselfer, retail spreads (what you would pay us for a bond and what you would then get if you sold it right back to us ) can range from $2 to $12.50 per thousand (assuming no change in interest rates).  And therein lies another distinction between building your own portfolio and hiring Lebenthal Municipal Asset Management to build and manage one for you.  To buy and hold, the retail buyer pays the piper just once.  The managed investor pays a fee annually (ranging from 0.50% to 0.25% on assets under management) – for a portfolio that can be traded at narrow spreads on the institutional side of the market, all the while the bonds in the portfolio are spinning off tax free coupon interest.

Of course, that’s why almost everyone buys munis and braves the attendant credit risks, market risks, and call risks.  Not for love of the hometown sewer system, but for tax free income that’s yours to keep. That is, if you stick to governmental purpose municipals issued in your home state that are exempt to local taxpayers from any state and local income taxes that may exist and that are not subject to the alternative minimum tax on private activity bonds.

Let it be said loud and clear, resale values before maturity can fluctuate with market volatility, general changes in interest rates throughout the economy, and changes in the fortunes of a particular issuer. One way for the do-it-yourselfer to mitigate the impact of rising and falling interest rates on the market value of all the bonds in a portfolio is by "laddering."

A ladder is a portfolio of bonds coming due at regular intervals.  If you need the proceeds from maturing bonds to live on, spend, and enjoy, fine!  At maturity take the money and run. Furthermore, the magnetic pull of par on the short maturities on the ladder as they approach their par redemption dates tends to enhance their liquidity if you need money in a pinch. Whereas, if you have no timetable for reusing your capital, you can stay abreast of interest rates by reinvesting at whatever the new going rates.  If rates have come down by then and it means taking a lower yield, at least you still have yet-to-mature bonds at the long end of the ladder grinding out their goodness year in and year out.  Back to mantras: “Never all long, never all short, never all wrong.”

One final word about diversification.  Diversification comes automatically with Lebenthal Municipal Asset Management.  Whether it’s for $500,000 or $5,000,000, your investment gets spread over a slew of issuers, localities, and market sectors. Spreading risk is not so easy for the under $250,000 investor who is picking and choosing bonds on his or her own, especially when the natural inclination is to do repeat business in a bond one has bought once and knows.

Eschew undue concentration.  Diversification doesn't ensure gains or loss protection. But if you are going to reach for yield, spread the risk, even if it means saying “No” to seconds on a bond you love.  Maybe that’s what we did best at the old Lebenthal and intend to do again: help investors decide, “Yes…” or “No.”

Be it ever thus.  Muni days are here again.

When is a slice of pie not a piece of cake? When municipal bonds have been the missing slice of your asset allocation pie chart, and now you know you belong. Only which bonds? That’s where I come in -- half teacher, half salesman, half tax expert, half therapist -- to do for you what I've been doing for 30 years. Giving investors the knowledge to balance risk vs. reward, long vs. short and stand on their own two feet in the bond market.
                           -- Corinne Smith

There are 1.5 million CUSIP numbers out there representing 1.5 million combinations of issuer, coupon, and maturity. Matching you up with bonds that are right for you is a people business, the art of which is sculpting one individual at a time, not in clay, but in long term/short term, high coupon/ low coupon, premium/discount, revenue/general obligation bonds that really fit.  Talk to us. The better we know you, the better we can take care of you.
                           -- Greg Serbe