Morningstar Advisor - August/September 2012 - (Page 10)

On Topic What’s Your View of the Muni-Bond Market? Let us know your thoughts at magazine_editor@morningstar.com “I’m very cautious on munis in the long run. Municipalities and states have a $2 trillion unfunded pension liability, using aggressive pension portfolio return assumptions. If stocks don’t deliver over the next decade, there could be systemic defaults as the municipalities and states run out of money to pay these liabilities. Thus, clients’ bonds could be hit just when their stock portfolio has had lousy returns. Bonds should be clients’ shock absorber, and munis represent about 8% of the U.S. bond market. Most of my clients’ fixed income is in instruments backed by the U.S. government.” Allan Roth, CFP Wealth Logic Colorado Springs, CO has not changed. We have always been cautious and bought general-obligation or essential-revenue bonds. If we stick with these, we feel comfortable that we are not exposing our clients to any unnecessary risk.” Anthony Pace, CFP Lindberg & Ripple Windsor, CT Quick Poll (given June 29, 359 responses) 1 Do you think the municipal-bond market is … Undervalued Fairly valued Overvalued 16.8% 59.4% 23.8% 2 What is the primary reason your clients invest in municipal bonds? Tax considerations Income Preservation of capital Total return Other 3 Municipal bonds have earned impressive gains recently. Are you becoming more cautious or adventurous, or neither? Time to play it safe 33.6% 65.0% 1.4% Staying the same Looking to be more aggressive 4 What about the municipal-bond market concerns you the most? Interest rates will rise Tough economy will cause more defaults Yields are falling and prices rising Market is becoming less liquid 5 Do you buy individual muni-bond issues or invest through mutual funds? We buy munis on our own We outsource to a fund manager Both 23.5% 36.7% 39.8% 49.8% 24.5% 21.1% 4.6% 50.1% 23.8% 14.3% 10.6% 1.2% “Why munis would rally when basically almost every city and county is broke is beyond me. And they keep issuing new ones. Maybe they’re going to party until it implodes?” Laurence Menna, CFP Menna Capital Management Bakersfield, CA “In the fourth quarter of 2011, I shortened my municipal-bond durations to five years or less as a hedge against potentially higher interest rates, but I’m not making any additional changes at this time. I’m still positive about the municipal-bond market going forward, although I believe the “We are mostly positive on munis right now because tax rates may go up next year and beyond, making them more attractive investments on an after-tax basis. That being said, we are also cognizant of the majority of the return will result from the dividend yield versus capital appreciation.” Stephen Blomberg, CFP Ameriprise Financial Services Indianapolis, IN issues going on in municipalities “Ten-year AAA munis are still yielding more than 10-year Treasuries. It goes without saying that AA and A bonds offer even greater yields. Municipal defaults are still low, and when they happen, there is a very public deterioration in the finances of the municipality. Therefore, we are still building high-quality muni ladders for our clients in higher tax brackets. Our strategy across the country. Most of those municipalities are taking aggressive action to strengthen their finances. We believe states and municipalities are doing an excellent job of focusing on shoring up their balance sheets. We also would like to see more supply come to market, which would help soften prices, but we do not see supply increasing much for at least another year or so.” Jack Riashi, CFP Bloom Asset Management Farmington Hills, MI 10 Morningstar Advisor August/September 2012

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2012

Morningstar Advisor - August/September 2012
Contents
Contributors
Letter From the Editor
How Much of the Behavior Gap Is Your Fault?
What’s Your View of the Muni-Bond Market?
A Balanced Life
How to Get to Know EMMA
A Strong, Robust Fund Business
Dividend Investing Abroad
Four Picks for the Present
Investment Briefs
Fund Expenses Through the Decades
Autos on Comeback Track
Lessons From the Muni-Bond Rebound
Municipal-Bond Landscape Shifts
Municipal Bonds 101
A Tale of Two Cities
Unraveling the Mysteries of Money
Small Companies Mean the World to Him
The Chinese Art Market and the Origin of Bubbles
The Myth of the Dumb Investor
Stocks That Can Stand the Heat
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The War on Savers

Morningstar Advisor - August/September 2012

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