Van Eck Global - Since 1955

Muni 2Q'14 Investment Themes - Wednesday, 04/02/2014

Watch my latest video focusing on:

  • 2Q Outlook
  • Federal Reserve Policy
  • 2014 Performance
  • Rally in High Yield


 
 

Video Transcript 

Outlook

The second quarter of 2014 is likely to differ from last year in a couple of significant ways. We had positive momentum build in the first quarter of 2014; hopefully it will continue. What we may not have to worry about in 2014 is tapering, or the sudden rise of interest rates that occurred last May and June and threw the fixed-income markets into disarray. Now we have a scenario where we believe the Federal Reserve is going to modestly adjust its quantitative easing and provide us with a stable platform going forward with respect to interest rates.

Fed Policy

What the Fed does in this next quarter matters because of expectations. Fixed-income markets were thrown into disarray last year because of the Fed's prospects of tapering, i.e., the removal of a certain amount of quantitative easing from its policies. What the Fed does under Janet Yellen in the second quarter of 2014 will go a long way to determine whether we have stability in the fixed-income markets for the remainder of the year. Fed policies are key not only to the United States, but also to global stability in terms of fixed income.

2014 Performance

We have had good performance on the books so far in 2014 (as of 3/31/2014), and it's a bit of a surprise because we came off of a difficult year in 2013, right up to the end of the calendar year in December. The turnaround was remarkable. Performance has been good, in part, because cash has returned to mutual funds and exchange-traded funds. Supply, the amount of new issues in the municipal marketplace, has been reduced and is down significantly from what we are used to seeing, particularly in the months of February and March. With that backdrop we have already put up some very decent numbers for munis. Furthermore, if the Obama administration is going to leave any kind of a legacy with tax reform or balancing the budget, taxes inevitably are going to be higher, and that means the value of the municipal tax-free coupon will be a dominant theme for investment advisers going into the second half of 2014.

High Yield

So far this year (as of 3/31/2014), in addition to general performance gains in the municipal marketplace, high yield has rallied for a couple of reasons. Last year assets left the industry and assets left many of the high-yield funds, creating an oversold condition. My view is that going into the end of this first quarter and into the second quarter of 2014, investment advisers and other institutional investors may recognize this oversold position and, looking at the relative valuations of high-yield to investment grade, may conclude that the valuation is there. The yield that's delivered right now in the high-yield spectrum is equivalent, if not greater than that of any other high-yield product that you're going to find in fixed income.



 jim_colby_signature 

 

 

Important Disclosure 

Van Eck Associates Corporation does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service.

Please note that MUNI NATIONs that are written by Jim Colby represent his opinions and these opinions may change at any time and from time to time. MUNI NATION is 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.

All indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.

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.

The income generated from some types of municipal bonds may be subject to state and local taxes as well as to federal taxes on capital gains and may also be subject to alternative minimum tax.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR | 888.658.8287. Please read the prospectus and summary prospectus carefully before investing.  

Van Eck Securities Corporation, Distributor
335 Madison Avenue, 19th Floor
New York, NY 10017
888.MKT.VCTR | 888.658.8287