May 17, 2013
This week we had the pleasure of meeting with John Pomeroy from Franklin Templeton Funds. Mr. Pomeroy is the lead portfolio manager of Franklin's tax-free funds since 1986. Below are my notes from our discussion.
-Tax-free bonds generally offer higher yields than treasuries with less volatility, which is a compelling reason to consider tax-free bonds for a part of your portfolio.
-Municipalities' largest concerns are not current budget gaps, but rather managing pensions and healthcare costs. Many are switching from a traditional pension system to defined contribution plans. They are also extending retirement ages and lowering distributions. These changes should make municipalities financially stronger.
-Inflation should remain tame, which suggests a stable bond market.
-Mr. Pomeroy and his team tend to hold bonds to maturity. Investors buy bonds for tax-free income, the fund tries to parallel a personal bond portfolio.
-The decision making process for adding a bond to the portfolio is based on income. Are we getting compensated for the risk we're taking? Where on the yield curve is most attractive? Where are credit spreads most attractive? That is where we seek to invest.
-Though they manage for long-term income, they are holding a higher than normal amount of cash in order to buffer the fund in the event of rising rates.
Not every fund is right for every investor, so before you consider this or any mutual fund you should consult your advisor and read the fund prospectus. We're always available to answer your questions on this or any other investment topic
Sam DiNorma
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).