(Dow Jones) Like many financial advisors, Stan Richelson is fielding calls these days from clients wanting reassurance about their holdings in the municipal bond market.
His response: "Stop worrying, get over it." He then explains to them how and why, as he puts it, "the world is not coming to an end."
While most advisors say their clients aren't panicking, headlines about potential municipal defaults and even bankruptcies has led to steady outflows from municipal bonds in recent months. Investors pulled $1.9 billion out of municipal bond funds in the week ended Jan. 26, the 11th straight week money has left the funds, according to Thomson Reuters Corp. (TRI, TRI.T) unit Lipper FMI.
Richelson, a fee-only advisor, oversees about $167 million in bonds at Scarsdale Investment Group in Blue Bell, Pa., for families and high-net-worth investors. At least two-thirds of that total is in municipal bonds. Of the 50 families he works with, he's heard from about 10 or 15.
His firm deals only in high-quality munis, he says, which present little risk: general obligation bonds of Triple-A-rated cities and counties along with essential-service bonds. They're steering clear of New York, California and Illinois.
"We only buy the top of the food chain," he says. "Pennsylvania, North Carolina, Virginia--these states are not going out of business."
David Bendix, a certified financial planner with Bendix Financial Group in Garden City, N.Y., oversees about $100 million, 15% to 20% of that in a combination of municipal bonds and muni-bond funds. Bearish comments on munis by Wall Street bank analyst Meredith Whitney in December spurred "a bunch of calls" from his clients, he says.
"Nobody is panicking," says Bendix. "My feeling is municipalities tend not to just go out of business like a corporation, especially with some of the general-obligation bonds, when you have the full taxing authority of the states, you have some protection there."
If anything, Bendix says, the overblown concerns have created buying opportunities.
There are more inquiries into muni-bond funds than there were three months ago, as "opposed to buying an individual bond and wondering whether the rating is good," he says. He's also looking to shorter-term municipals "to take away some of the interest-rate risk."