Historically, municipal bonds have proven to be one of the highest-quality asset categories. They often are the go-to for high net-worth investors seeking safety of principal, predictable income generation, and attractive after-tax yields. While the role that munis can play within a bond portfolio is clear, what to look for in a muni bond manager may not be.
At Riverbend Capital Advisors, we believe our client-centric investment approach differentiates us from other muni bond managers. More importantly, it enables us to provide individual and family office investors and their advisors with the guidance they need to achieve their specific investment objectives.
In this post, founder Tom Hession highlights three facets of Riverbend’s differentiated approach.
I spent the first half of my municipal bond career on the institutional side of the business. From my vantage point there I observed that, despite the positive attributes of investing in municipal bonds, price markups happen, monitoring of credit and structure can be lax, and rebalancing in accordance with market changes is rare. Feeling strongly that there needed to be a better way, I decided to form a boutique firm specializing in the municipal bond asset class for the benefit of individual and family office investors and their advisors.
In the 10+ years since, Riverbend Capital has become highly regarded among financial advisors as a specialized muni bond resource providing expert municipal market guidance, customized portfolio solutions, and a high level of individual service.
The municipal bond market is known for its history of positive returns1 and for the ability of muni portfolios to generate predictable streams of tax-free income. Passive approaches to investing in munis can be less effective at navigating the fragmented trading landscape. Generic, one-size-fits-all solutions seldom take into account specific client investment objectives and risk parameters and can miss opportunities in this inefficient market.
At Riverbend, our bespoke approach seeks to help clients achieve their investment goals by providing proactive management, transparency, and access. We function as advocates in this market for the best interests of the clients and advisors we serve.
In the process of reviewing portfolios from prospective clients over the years, I’ve often been shocked by the shortcomings I've encountered. In one instance, almost all the bonds in a portfolio were approaching maturity in the near term and interest rates were considerably lower than when the bonds were originally purchased, setting the investor on a course to much lower income than they’d been accustomed to receiving. This could have been avoided through periodic reviews and rebalancing. In another instance I discovered an unfortunate deterioration in credit quality and exposure to risk which the investor was unaware of.
Advisors who have engaged Riverbend to provide their clients with customized and separately managed portfolio solutions that address their unique investment objectives can cite this as a point of differentiation for their firm. We think it’s also a more effective way to help investors achieve their goals.
Our typical client is allocating to munis as a means of balancing risks they’re taking elsewhere (i.e., other asset classes). They consider their investments in munis as “safe” money, and we treat it accordingly.
Before selecting bonds for an investor’s portfolio, we assess their liquidity needs, risk tolerance, and tax considerations.
We structure our portfolios defensively, typically with reasonable duration and high-grade credit. Investors can continue to achieve income and safety objectives with our proactive approach to portfolio management. Bond selection is critical, and so are structure and execution.
Our portfolios are primarily comprised of:
Essential service revenue bonds (water/sewer/electric utility)
General obligation bonds from states, cities, and counties with strong balance sheets and in many cases, multiple layers of support
Higher education bonds from nationally recognized institutions with positive enrollment trends and significant endowments
Healthcare facilities that are part of larger networks with dominant market share
Transportation issues with consistent revenue streams and solid credit profiles
We believe a manager who carefully scrutinizes the creditworthiness of specific issuers and is an active and knowledgeable participant in the less-than-transparent market for municipal bonds can capture value on behalf of investors.
1 *ICE BofA US Municipal Securities Index