With over fifty-thousand issuers and dozens of different bond structures, the municipal bond market is arguably the most diverse fixed income sector. It is also highly volatile due to issues related to market segmentation and lower liquidity. This landscape provides a rich environment for value oriented managers such as BBH who seek to generate attractive risk-adjusted returns through active portfolio management while also protecting investors’ capital with sound underwriting. Our independent research serves as the foundation of our investment process.
When constructing our municipal bond portfolios, we apply a disciplined investment selection process that focuses on the following seven issuer attributes:
- Provides essential services
- Strong competitive position
- Financial strength
- Robust operating model with pricing flexibility
- Backed by a proven revenue stream
- Strong coverage and covenant protection
- On-time financial filings
We also take into consideration management attributes, when applicable:
- Political willingness to exercise rate autonomy
- Positive operating performance
- Sound capital expenditure plans
- Responsible use of derivatives
The portfolio management team generally expects to target between 75-125 securities in major sub-sectors of the municipal bond market.