You're watching...
American Century Senior V.P. Steven Permut on how investors can gain from municipal bonds.
Also in this playlist...
Auto-advance: ON
Auto-advance
This transcript is automatically generated
There is speculation spooked investors in -- pulling billions of dollars from the Muni market last year my next guest says.
They had it all wrong it created a solid opportunity for you to make some Muni money but does that opportunity continue where how joining us now from Mountain View California Stephen permit he is senior VP.
And American century alright.
-- industry speculation let's call it what it was it was Meredith Whitney the banking analyst she was -- that listen that's that's history.
She thought hundreds of billions we're going to go under for municipals.
And it didn't happen.
You say that created an opportunity is -- past -- or do -- opportunities.
Still continue.
What do you think.
-- this week we think the opportunity still continue they're not as great as they war.
-- when Meredith Whitney made that comment which as you said was wrong.
And a lot of investors left a lot of money on the table in 2011.
And the first quarter of this year but we believe the opportunities are still there.
They may not be as great as they once wore on they're not going to be double digit returns this year but they're gonna be solid.
Core performance.
Out of Muni bonds and Muni bond funds so Suisse continue to like Munis where they're valued.
OK let's let's just let people know what kind of value they get municipal saw about a ten point 7%.
Total return for 2011.
Obviously has better than treasuries.
Your American century intermediate term this is a tax free bond fund ticker symbol TW TTX with slightly outperforming even that level what's in it.
And why should -- not worry -- when so many municipalities out there and by the way there are about 90000 manipulate municipalities -- they're asking for my money.
-- they're not getting the tax revenues coming in.
How can I be sure how the white -- these things with out getting stuck in a sand pit.
Well this that's one of the reasons we like professionally managed funds because they have diversification.
And they have professional management if you take our intermediate tax free bond fund which he said -- did -- double digit returns last year and is up about 2% this year.
It's a very high quality double A average rating.
Bond fund that buys bonds in the intermediate part of the municipal yield curve so they're not as exposed to interest rate risk.
If we -- to see higher rates down the road on the as a long bond fund or long individual bonds would be impacted by those high.
Rates okay we're looking -- -- how you allocate please leave that up for a little bit on what our viewers to be able to see it and understand -- how you allocated.
Look.
There are all kinds of fixed -- comes or at least corporate bonds corporates deep fault.
At 86%.
Right 86 times rather the rate that Munis do so in a way are you saying that Munis even though they're not triple rated triple A rated.
Now because of Moody's and S&P changing some other standards that they are still relatively safe.
Get -- municipal bonds especially when we speak about investment grade municipal bonds and are only second -- US treasuries in terms of safety if we look at the default rate.
-- municipal bonds.
It has a default rate of less than half of 1% in fact last year which was the year in which the naysayers said we have.
Hundreds of billions of dollars -- the fault it was actually about one point seven billion dollars.
At a three point seven trillion right that actually default it's not a -- defaults are not really I'm.
I'm sorry it was less than a percent and and what I want to do though we have want to get to the two that you happen to like right now.
You've got the Los Angeles department of water and power I'm from LA it's -- well.
You've gotten the -- the budget people in Los Angeles warning that without tax hikes she might have a bankruptcy there.
About why do you like daily DWP.
To get -- there's not gonna be a bankruptcy in Los Angeles.
And we don't believe there's going to be a bankruptcy of any large municipal issuer.
Anywhere really in the nation.
What we have done with our portfolios is we have reposition them.
So that they will not be impacted to the degree that they would've been a few years ago by a decrease in tax revenues for that reason we currently have an overweight.
In what we consider to be.
Essentials service revenue bonds bonds that are paid for.
By user fees bonds that are paid for.
By customers using water services sewer services or are using power and for that reason on the two bonds and I'm recommending today one would be.
As -- said Los Angeles department of water and power it's a high quality -- -- it's an issue where that's not going to be impacted if tax revenues fall off.
And for a bomb that's due in about nine years you can get a tax equivalent yield of about three and a half percent today for an investor and cal.
-- and you like New York City Muni water which is up on the screen Stephen good to see you please come back we like we like -- -- -- collapse point out that.
When things go wrong don't be scared get in there and that might be a real opportunity good to see you.
Thank you Liz Stephen Herman is senior vice president at American century and of course he runs the intermediate term tax free bond fund closing bell.
