Anthony Parish, a fixed-income product specialist at DWS Investments, says he's starting to hear more advisors talk about buying opportunities in the muni marketplace. "There was indiscriminate selling in the months of November and December," says Parish. Now, "more are realizing that the muni markets are likely oversold." That's not to say that there won't be more volatility, however, he says.
That said, "I believe more and more advisors are saying, 'I know there are problems out there in municipal budgets, but it looks like the problems are getting better from a fundamental perspective than getting worse, and for the attractive yields I'm seeing, I'm OK to accept those risks within a diversified portfolio,'" he says.
William Van Keulen, a fee-only planner and advisor with Carnick & Co. in Colorado Springs, Colo., oversees $200 million in assets, half of it in munis. Evaluating municipal bonds is complex and comes down to the underlying revenue streams, he says. "We're not taking about a homogeneous group of issues out there."
Van Keulen's clients already understand that he won't look at a municipal issue unless he can understand the associated revenue streams, he says. Still, some clients are asking what he's doing in light of recent reports.
"We've heightened our attention to the portfolios to make sure that the debt coverage is within a reasonable parameter given certain covenants in the bonds. We're spending more time now than ever on that," he says. In addition, he's selling off issues of certain cities, including Kansas City and some cities in Florida.
Van Keulen sticks with essential-service bonds and those issued by states with reasonable budgets and in areas of the country that aren't experiencing high foreclosure rates and where revenue streams haven't dropped off by much. "If they stop flushing their toilets and paying their water bills, then we have a problem," he says.
Despite Richelson's reassurances, one client did sell his municipal bonds more than a year ago. "He's now lost 5% tax-free on everything we sold," says Bendix. "He's probably feeling much better because of all the negative talk, but he's losing all this money."
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