In the wake of the Detroit bankruptcy filing, some are taking a second look at their municipal bond holdings, but muni investors shouldn’t completely abandon the sector.
Fund experts believe that even with the Detroit filing now is the wrong time to abandon munis, writes Chuck Jaffe for the Seattle Times.
Jaffe points out that the dearth in muni bond doom-and-goom stories indicates that managers know what they are up against even before the Michigan mishap garnered nationwide attention.
“Any fund manager worth his salt has seen this coming, as Detroit’s problems did not pop overnight — they were well publicized and covered in muni circles,” Christopher Keith, who manages bond portfolios at Adviser Investments, said in the article. ““This means that your higher-quality focused portfolio managers had time to work out of their positions or, at the very least, reduce exposure to the point where it will not cause noticeable harm.”
Meanwhile, some other municipalities are also facing revenue shortfalls and underfunded pensions, but they could take the negative default publicity to strive for legislative and administrative changes.
“Despite this and other highly publicized pockets of trouble, municipal bonds remain a safe, low-risk and conservative asset class,” Keith added.