Harness the Power of Tax Exemption with Munis

Peter Hayes | February 25, 2013 | Topics: Fixed Income,  Economic Outlook 

View Transcript

In terms of opportunities the first and most obvious one is just the tax-exempt nature of the income. Marginal tax rates have gone up for many investors with the highest now being 39.6. We have the Affordable Care Act on healthcare at 3.8 percent, of which muni income is exempt from very importantly. We have the payroll tax. And also, the limitation of deductions I think is a big one that most clients and investors haven't focused on yet. And that can add anywhere from one to three percentage points on their marginal tax rate as well. So just the fact that the tax-exempt nature of the income is more powerful now than ever before, we think is probably the biggest opportunity. It also gives you more of a cushion if rates do rise.

And then we see opportunities along the yield curve. We think focus on the intermediate curve. I talked about that duration extension earlier. We're more comfortable now a bit with credit risk, but by credit risk I do not mean high yield. I mean more in the A rated BBB part of the credit spectrum for revenue sectors like healthcare and transportation and focus a little bit more on the intermediate part of the curve. We think a patient approach, putting money to work in periods of volatility when we do see sell-offs is probably the best route to realizing good outcomes for 2013, and focus on income, not so much total return. We got a lot of that in 2011 and '12, and this year reset those return expectations lower.

Investing involves risk including loss of principal. The opinions presented are those of Peter Hayes, Portfolio Manager, member of BlackRock's Fixed Income Portfolio Management Group, as of February 15, 2013 and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or made investment decisions that may, in certain respects, not be consistent with the information contained in this presentation. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this presentation are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Past performance does not guarantee future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the viewer.

Prepared by BlackRock Investments, LLC, member FINRA

BLACKROCK is a registered trademark of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

USR-1672

About the Author

Peter Hayes
Managing Director, Head of Municipal Bonds Group

Related by Topic: Fixed Income,  Economic Outlook 

  • Can the Rally Continue?

    Russ Koesterich

    Can the Rally Continue? In the latest Investment Directions, Russ Koesterich provides his take and explains his recent downgrade of France and upgrade of South Korea.

  • What Spring Brings for Munis

    Daily Stat

    $34 Billion: April's monthly municipal issuance

  • High-Yield Bonds in a World of Low Rates

    Peter Hayes

    Over the past few years, high-yield bonds have been one of the best performing asset classes. But now that spreads have compressed and prices have gone way up, what should investors do? Peter Hayes, Head of the Municipal Bonds Group, shares his views.

  • Munis "Spring Ahead"

    Peter Hayes & James Schwartz

    March melancholy gave way to April optimism in the municipal market, as tax-season selling abated and supply/demand looked to resume a more favorable balance. Peter Hayes and James Schwartz discuss this and more in their monthly market update.

  • Will Municipals’ Tax-Exempt Status Change?

    Peter Hayes

    A cap on municipals’ tax exemption remains in the budget proposal, but will this change actually go through? Peter Hayes, Head of the Municipal Bonds Group, weighs in with his views.

  • High Yield: Why You Still Need It

    James Keenan

    After a solid four-year run, many investors are asking whether it’s time to lock in profits in high yield and move on. Jim Keenan, head of Leveraged Finance at BlackRock, explains why high yield stills deserve a central place in investor portfolios.

  • Blessed with Long Life. Hit by Low Yields. Time to Make a Change.

    Living longer is a blessing, but it’s an expensive one. More years in retirement means your money needs to last longer and stretch. The old ways of investing won’t get you to where you need to be. It’s time for a new strategy.

  • Positioning Your Portfolio for a Fed Exit

    Jeff Rosenberg

    When will the Fed begin to pull back on its quantitative easing program? Jeff Rosenberg, reveals his thoughts on a timeline and discusses how investors should position their portfolios for a potential Fed exit.

  • What's Next: The Critical Answers Spring Update

    BlackRock

    BlackRock's senior strategists discuss their views on key market and investment topics, answer the critical questions on investors' minds and point to where they see opportunities in the market.

  • What’s Next: Spring Update Investment Actions

    BlackRock

    BlackRock's best recommendations for the current investing environment.

  • The Sequester's Impact on the State and Local Level

    Peter Hayes

    Many investors are wondering how the federal sequester will impact the state and local level. Peter Hayes, Head of the Municipal Bonds Group, discusses this and more.

  • Traditional Fixed Income No Longer Compensates for Risks

    Jeff Rosenberg

    Traditional fixed income investments no longer compensate investors for the risks that they are taking. Jeff Rosenberg, Chief Investment Strategist for Fixed Income, shares his recommendations for how investors can generate income with their fixed income portfolios.

  • State of the States & Local Governments

    BlackRock

    Investors in municipal bonds have kept a close watch on how state and local governments have fared in the Great Recession and era of austerity. This report takes a comprehensive look at the current state of states and locals.

  • If Interest Rates Rise...

    Chart of the Week

    With interest rates near historic lows, new risks for traditional core fixed income investors are rising.

  • Where Will Interest Rates Go in 2013?

    Jeff Rosenberg

    January's backup in the 10-year treasury yield has many investors wondering if interest rates will rise further. Jeff Rosenberg, Chief Investment Strategist for Fixed Income, shares his interest rate outlook and recommendations for how investors should position their fixed income portfolios this year.

  • Hungry for Yield? Loans May Satisfy

    Leland Hart

    Seeking to enhance yield in your portfolio without appreciably increasing risk? BlackRock's Leland Hart says floating rate bank loans may be the answer.

  • New Year, New (and Old) Reasons to Like Munis

    Peter Hayes

    Munis have long been a source of high-quality, low-volatility income. That's true to this day, but BlackRock's Peter Hayes explains why 2013 will not be exactly like 2012...or 2011.

  • Keep More of What You Earn with Munis

    Peter Hayes

    Municipals have had quite a run but they still remain an attractive investment in 2013. Peter Hayes, Head of the Municipal Bonds Group, explains how you can keep more of what you earn with municipals.

  • Positioning Your Fixed Income Portfolio in 2013

    Jeff Rosenberg

    Now that the new year has begun, how should you position your fixed income portfolio? Jeff Rosenberg, Chief Investment Strategist for Fixed Income, discusses opportunities in the fixed income market in 2013.

  • Fixed Income Outlook for 2013

    Jeff Rosenberg

    Jeffrey Rosenberg, BlackRock's Chief Investment Strategist for Fixed Income, discusses his themes for 2013, including the outlook for interest rates and fixed income sectors, as well as perspectives on China and Japan.

  • US Fiscal Cliff Deal: A Stopgap, Not a Solution

    Russ Koesterich

    With Washington finally coming to a limited agreement to prevent (or delay) the fiscal cliff, BlackRock offers our thoughts about the economic and investment implications.

  • Fiscal Cliff: Good News for Fixed Income Markets?

    Jeff Rosenberg

    Jeff Rosenberg, Chief Investment Strategist for Fixed Income, reveals why going over the fiscal cliff may be good news for some areas of the fixed income market.

  • Worried about Muni Credit? Understand the Fiscal Cliff Impact

    Peter Hayes

    Peter Hayes, Head of the Municipal Bonds Group, discusses the fiscal cliff and the potential impact on municipal credit.

  • The Impact of Tax Policy Changes on Municipals

    Peter Hayes

    Peter Hayes, Head of the Municipal Bonds Group, discusses the potential impact that pending tax policy changes may have on the municipal bond market.

  • Taking Stock: Market Views From the Go-Anywhere Team

    BlackRock

    The go-anywhere BlackRock Global Allocation team offers insight into today's markets and discusses how they're navigating an uncertain world.

  • State of California Update

    Peter Hayes & Jack Erbeck

    After capturing its fair share of news flow in 2012, California enters the second quarter of its fiscal year headline-free and with a notable budget win after voters approved a meaningful tax measure on Election Day.

  • Now for the Hard Part: Investing After the US Elections

    BlackRock

    The votes have been cast; now the hard work begins. In a new report, BlackRock discusses the key challenges and other market implications of the US elections.

  • Beyond the Ordinary: Credit Opportunities for Yield and Return

    Rick Rieder

    Rick Rieder, Co-Chair of BlackRock's Special Credit Opportunities Investment Committee, discusses the unprecedented credit-related opportunities being created in the post-crisis fixed income world.

  • 2012 Elections: Implications, Insights and Investments

    Peter Hayes & Jeff Rosenberg

    In our pre-election analysis, BlackRock offers suggestions as to where investors can find value in the current markets.

  • The Appeal of Dedicated Tax Bonds

    BlackRock

    Amid fears - warranted or not - of municipal bankrupties, dedicated-tax bonds are one form of muni debt that offers a certain amount of solace for investors. Members of the BlackRock Municipal Bond Management Committee explain why.

  • Local Government Bankruptcies: Cause for Alarm?

    James Schwartz & Peter Hayes

    The fiscal plight of local governments has been well publicized, with recent bankruptcy filings sparking concern about risk in the municipal space. The news flow comes as little surprise to members of the BlackRock Municipals Group.

  • States Saving for a Rainy Day

    Chart of the Week

    Balances in state rainy day funds have increased 50% since reaching a low in fiscal year 2010.

  • The Methadone Market

    Jeff Rosenberg

    Jeffrey Rosenberg discusses the implications of the Bank of Japan's historic announcement, how investors are encouraged to front-run policy changes and why inflation may not appear for some time.

  • A Core Bond Alternative Built to Adapt

    Rick Rieder & Bob Miller

    BlackRock’s Rick Rieder and Bob Miller discuss why traditional fixed income approaches may not work in this new world of investing, and how an adaptable approach can help investors achieve their goals.

  • Making a Difference One Bond at a Time

    Peter Hayes & James Schwartz

    The municipal bond market is rich in opportunity. Learn how careful credit research can make all the difference in the success or failure of a municipal bond portfolio today.

  • "TIPS" for Protecting Your Portfolio Today from Inflation Tomorrow

    Brian Weinstein & Martin Hegarty

    Higher rates of inflation may be on the horizon, and investors should be prepared. BlackRock's senior inflation-linked fixed income experts discuss the value that Treasury Inflation Protected Securities (TIPS) can provide to a portfolio.

  • Leaving College with Full Hearts…and Empty Pockets

    Daily Stat

    $30,000: The average student-loan debt for a borrower receiving a bachelor's degree in 2013

  • Inflation Coming? Not Yet

    Russ Koesterich

    Despite some worries to the contrary, BlackRock Chief Investment Strategist Russ Koesterich is not expecting to see higher inflation for at least the next 12 to 18 months—good news for stocks and high yield; less so for gold.

  • Is Risk Reflected in the Price of the Market?

    Russ Koesterich

    When looking at valuations, the challenge is always to identify the risks and determine to what extent those risks are reflected in the price of those assets. In this week's video, Russ Koesterich discusses four scenarios.

  • New World Wisdom: Winning More by Losing Less

    BlackRock

    When it comes to investing, the fastest sprint doesn't necessarily make you a winner. Portfolio managers of the BlackRock Equity Dividend Fund discuss why they believe slow and steady wins the investing race - particularly during volatile times.

  • Understanding Gold’s Value in a Portfolio

    Russ Koesterich

    Gold is a difficult commodity to value, and many investors are asking if now is the time to buy or sell the precious metal. Russ Koesterich, Chief Investment Strategist, shares his views in this week’s BlackRock Answers video.

  • Exercise Caution with Small-Cap Stocks

    Russ Koesterich

    Small-cap stocks have been performing well, but our Chief Investment Strategist recommends exercising caution with them. Find out why in this week’s BlackRock Answers video.

  • Emerging Markets: There's More Than One Way to Play

    BlackRock

    Emerging markets have been the dominant growth story of the past generation. As the cycle evolves, so must the investment approach. The BlackRock Global Allocation team offers five thoughts for investing in emerging markets today.

  • Market Correction: What Could Cause One?

    Russ Koesterich

    Many investors are anticipating a market correction this year. Russ Koesterich, Chief Investment Strategist, reveals three catalysts that have the potential to cause one.

  • Examining Energy Markets

    Chart of the Week

    While developed markets have recently leveled off in their consumption of oil, emerging markets are just beginning to tap the energy markets.

  • Tapping Into the Strength of Emerging Markets

    Russ Koesterich

    As emerging markets continue to march along, investors are wondering how they can take advantage of this growing opportunity. Russ Koesterich, Chief Investment Strategist, discusses two ways you can tap into the strength of emerging markets.

  • High-Potential Investments Don't Require High Price Tags

    Bart Geer

    Value remains an important priority for Americans today. BlackRock's Bart Geer believes that same mentality should apply when constructing an investment portfolio.

  • Time to Buy Japanese Stocks?

    Dennis Stattman

    Several unique factors are contributing to the momentum behind the Japanese equity market. Dennis Stattman, Head of the Global Allocation Team, reveals why he is bullish on Japanese stocks.

  • Mega Caps Well-Positioned for 2013

    Russ Koesterich

    Mega caps rallied in 2012 and this year may not be that different. Russ Koesterich, Chief Investment Strategist, discusses why mega caps are well-positioned for 2013.

  • Consider This Equity Opportunity in 2013

    Dennis Stattman

    As 2013 begins, consider a new investment opportunity. Dennis Stattman, Head of the BlackRock Global Allocation team, reveals where you can find great value this year.

  • Fiscal Cliff Deal: What It Means for Investors

    Russ Koesterich

    A fiscal cliff deal has been reached, but what does it mean for investors? Russ Koesterich, Chief Investment Strategist, identifies opportunities in 2013.

  • The Benefits of a Long/Short Strategy in Emerging Markets

    Rodolfo Martell

    Opportunities in emerging markets are plentiful but knowing how to best capitalize on them is important. Learn how a long/short strategy can help you mitigate volatility and benefit from inefficiencies in these markets.

  • Opportunities in the Post-Election Credit Markets

    Josh Tarnow

    Josh Tarnow, Portfolio Manager with the Leveraged Finance Portfolio Team, discusses opportunities for long/short strategies in the credit markets following the US election.

Featured Insight

"Won't Get Fooled Again"...and More of My Favorite Theme (songs) for 2013

Jeff Rosenberg

Jeff Rosenberg discusses his themes for 2013, including the outlook for interest rates and fixed income sectors, as well as perspectives on China and Japan for the year