Municipal Fixed Income

Bottom-up credit research designed to uncover value in the diverse U.S. municipal bond market

Strategy Objectives

The objective of our Municipal Fixed Income Strategy is to deliver excellent after-tax returns in excess of industry benchmarks through market cycles. We invest bottom-up and seek to own a limited number of durable credits that offer attractive yields.
 
Our independent research serves as the foundation of our municipal investment process. We also apply a proprietary quantitative framework to help assess each security’s valuation and its long-term return potential. When opportunities to purchase securities that meet both our credit and valuation criteria are not available, we hold high-quality liquid reserves.
  • Active Management: We believe in a bottom up, value-based approach to active management.

  • Durability: We only invest in securities we believe are built to withstand a variety of economic conditions.

  • High Conviction: We work to balance ample diversification while ensuring meaningful concentration in our highest conviction ideas.

  • Long-term Perspective: We underwrite our investments to perform through market cycles.

  • Discipline and Patience: We let valuation drive our investment process and will hold reserves when the opportunity set is limited.
     

  • Top Quartile

    5 year eVestment ranking*

  • $5.4 Billion

    Municipal Fixed Income AUM

    (as of 12/31/20)

  • 12 Years

    Average municipal bond experience of BBH team

  • >60 Years

    Managing municipal bond portfolios

*17th percentile of 116 strategies over 1 year, 19th percentile of 105 strategies over 5 years, and 43rd percentile of 84 strategies over 10 years in the US Municipal Fixed Income - Intermediate Duration Category based on gross returns for the periods ending 12/31/2020.

With over 1 million individual issuers, the vast diversity of the municipal market lends itself well to our selective, bottom-up approach.



Greg Steier MD and Portfolio Manager

Investment Process

When constructing our municipal bond portfolios, we apply a disciplined investment selection process that focuses on durable issuers with the following critical attributes:

  • Provides essential services or funds critical infrastructure
  • Strong competitive position
  • Financial strength
  • Robust operating model with pricing flexibility
  • ESG risks appropriately mitigated
  • Backed by a proven revenue stream
  • Strong coverage and covenant protection
  • On-time financial filings
     

Our valuation framework:

  • Allows for uniform evaluation and ranking of the entire municipal bond market.
  • Incorporates margin of safetyClose
    Margin of Safety

    With respect to fixed income investments, a margin of safety exists when the additional yield offers, in BBH's view, compensation for the potential credit, liquidity and inherent price volatility of that type of security and it is therefore more likely to outperform an equivalent maturity credit risk-free instrument over a 3-5 year horizon.

    See More Definitions
    considerations which vary across sectors and ratings tiers.
  • Countercyclical by design, it signals new opportunities when valuations are attractive, and reduced exposures when valuations are approaching full value.
  • Provides valuable input on position-sizing and allocating our credit team’s resources.

Buy Discipline:

  • Systematic review of actionable opportunities.
  • Deep fundamental credit review of identified opportunities.
  • Positions sized commensurate with expected risk-adjusted return potential.
     

Sell Discipline:

  • Unforeseen fundamental deterioration.
  • Credit no longer offers a margin of safety.
  • More attractive opportunities arise .
  • Portfolio rebalancing.
  • We strive to be tax aware with all selling activities.

We view investment risk in absolute, rather than relative terms.  We believe the greatest risk to a fixed income portfolio is the permanent impairment of a portfolio holding. Our primary defense against impairment is the rigorous credit underwriting process we employ prior to each purchase and through its holding period.  We underwrite all credit holdings to maturity and only purchase performing credits we believe to be highly durable.  Every credit we purchase has been pre-stressed to withstand the most severe adversity that we anticipate for its industry or asset type.

We believe that investors should only accept credit risk for which they are amply compensated.  We have designed a valuation framework that quantifies the risk associated with credit to identify opportunities that are worthy of a deeper credit review and size their allocation in portfolios.  This process of risk management interacts with the investment process by narrowing the universe of securities to which we will apply our valuable analytic resources.

We ensure both a well-controlled trading platform and compliance with client guidelines through a comprehensive enterprise risk management framework that includes an automated front-end trading system, pre-trade guideline clearance by a dedicated risk management team, independent senior management compliance oversight, and formal weekly portfolio reviews.

What Makes Us Different?

  • We strive to identify strong absolute-value, not relative-value, opportunities.
  • We are entirely bottom-up with a team-based approach emphasizing security selection.
  • Our portfolio sector exposures take shape through a strict adherence to our valuation and credit criteria.
  • We avoid large macroeconomic and directional positions that add volatility, but not return.
 

How to Invest

Our Municipal Fixed Income Strategy can be accessed through a variety of investment vehicles. To learn more please contact a member of our institutional relationship management team.
 

Visit the BBH Funds website and the BBH Luxembourg Funds website for more information about our public fund offerings.

 

John Ackler

Senior Vice President
New York City, NY | USA

As a Fixed Income Product Specialist, John Ackler is responsible for overseeing many of the firm’s US institutional fixed income client and consultant relationships. John also participates in…  Learn More

Our Latest Insights

  • BBH Municipal Fixed Income Quarterly Update Q4 2020

    December 31, 2020
    • Investment Management

Performance and Portfolio Characteristics

  Composite Performance as of 12/31/2020
Municipal Fixed Income
Total Returns
Average Annual Total Returns
Composite/Benchmark
3 Mo.
  YTD  
1 Yr.
3 Yr.
5 Yr.
10 Yr.
Since Inception
(05/01/2002)
BBH Municipal Fixed Income Composite
(Gross of Fees)
1.11%
5.30% 5.30% 4.68%
3.93% 3.99% 4.21%
BBH Municipal Fixed Income Composite
(Net of Fees)
1.05% 5.04% 5.04% 4.42% 3.67% 3.73% 3.95%
Bloomberg Barclays 1-10 Yr Municipal Bond Index
0.98% 4.23% 4.23% 3.82% 2.96% 3.26% 3.78%

Past performance does not guarantee future results.  

Bloomberg Barclays 1-10 Year Municipal Bond Index is a component of the Barclays Municipal Bond index, including bonds with maturity dates between one and 17 years. The Bloomberg Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year.  The index is not available for direct investment.

 Portfolio Characteristics as of 12/31/2020
Municipal Fixed Income
  Representative Account Benchmark
 Effective Duration (years)
3.93
3.86

Yield to Worst
0.93%
0.62%

Portfolio holdings and characteristics are subject to change. 

Portfolio Characteristics are of the Representative Account. The Representative Account is the account whose investment guidelines allow the greatest flexibility to express active management positions. It is managed with the same investment objectives and employs substantially the same investment philosophy and processes as the Municipal Fixed Income strategy.

Gross of fee performance results for this composite do not reflect the deduction of investment advisory fees. Actual returns will be reduced by such fees. Net of fees performance reflects the deduction of the maximum investment advisory fees.  Returns include all dividends and interest, other income, realized and unrealized gain, are net of all brokerage commissions, execution costs, and without provision for federal or state income taxes. Performance is calculated in U.S. dollars.

eVestment rankings are based on gross of fee performance of the Composite and reflect reinvestment of earnings. The deduction of an advisory fee reduces an investor's return. Return may not be representative of any one client's experience. Past performance does not guarantee future results. eVestment rankings are as of 1/22/2021.

The BBH Municipal Fixed Income Strategy was previously called the BBH Intermediate Municipal Strategy.

Effective duration is a measure of the portfolio’s return sensitivity to changes in interest rates.

Yield to Worst is the lowest yield an investor can expect when investing in a callable bond.

This communication is for informational purposes only and does not constitute an offer or a solicitation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor’s circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice.  Any views and opinions are subject to change at any time.

Strategies are shown without regard to whether they are offered as separately managed account mandates or through pooled vehicles.  Any discussion of or reference to any given strategy herein should not be taken as a recommendation or solicitation of any pooled vehicle which has an investment objective featuring or similar to such strategy.

This material does not constitute an offer or solicitation in any jurisdiction where or to any person to whom it would be unauthorized or unlawful to do so.

Risk Considerations

There is no assurance that a portfolio will achieve its investment objective or that the strategy will work under all market conditions.  The value of the portfolio can be affected by changes in interest rates, general market conditions and other political, social and economic developments.  Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.

Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, maturity, call and inflation risk; investments may be worth more or less than the original cost when redeemed.  Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices.

Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax.

The strategy also invests in derivative instruments, investments whose values depend on the performance of the underlying security, assets, interest rate, index or currency and entail potentially higher volatility and risk of loss compared to traditional stock or bond investments.

As the strategy’s exposure in any one municipal revenue sector backed by revenues from similar types of projects increases, the strategy will become more sensitive to adverse economic, business or political developments relevant to these projects.

NOT FDIC INSURED ● NO BANK GUARANTEE ● MAY LOSE VALUE 

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