Investment philosophy
One of the key investment mantras at 16th Amendment is know what you own. In a market with more than 1.5 million cusips, we rely on the following in constructing portfolios:
Focus on Market Fundamentals and the Underlying Issuer
The municipal market is a supply and demand driven market. Paying constant attention to fund flows, issuance patterns, redemption cycles and tax policy are some of the critical components to decision making
Emphasize frequent issuers and large deal or CUSIP sizes
Look through credit enhancement to the underlying bond and its credit
Know the Structure
Understanding the structural features of a bond is essential
Unlike traditional corporate bonds, municipal bonds generally trade on a price to worst basis (not option adjusted duration)
Call features, market discount taxation, coupon and tranche size can all affect liquidity and performance
Do Not Sacrifice Liquidity for Diversification
Unlike equity investing where diversification is critical to portfolio construction, in municipals, we believe that you are better off owning fewer more liquid credits in institutional block sizes than many smaller odd lots
We emphasize ultra-high-grade and essential service bonds; not “yield” enhancing positions which add risk
Do Not Stretch for Yield
The investment grade market is large enough to find opportunities without “stretching” for yield or alpha
Be Proactive
Monitor portfolios regularly
The municipal market is affected by exogenous and non-exogenous factors which can impact portfolio values
Make tactical adjustments