Municipal Fixed Income

Fixed Income

Investment Strategy

Denver Investments’ Municipal Fixed Income strategy is based on the belief that consistently strong risk-adjusted returns are best achieved through an emphasis on income rather than short-term market timing. The strategy aims to minimize the tax consequences of capital gains and the Alternative Minimum Tax while using a collaborative approach grounded in proprietary research.

Portfolio Management

We believe that an emphasis on tax-free income and security selection while seeking to limit interest rate risk with intermediate maturities is the best way to consistently deliver strong risk-adjusted after-tax returns for our clients. – Kenneth A. Harris, CFA

Kenneth A. Harris, CFA

Kenneth A. Harris, CFA

Partner, Director of Fixed Income Portfolio Management, Portfolio Manager

Nicholas J. Foley

Nicholas J. Foley

Vice President, Portfolio Manager, Municipal Credit Analyst/Trader

Portfolio Construction Guidelines:

  • Ability to build single state focused strategies for high income tax states or broader diversified national portfolios
  • Invest in high quality, intermediate maturity tax-free municipal bonds
  • Diversified by sector, based on relative value assessment
  • Select bonds with a focus on preserving capital and decreasing volatility of portfolio returns
Benchmark:

Bloomberg Barclays Capital 7 Year Municipal Bond Index

Investment Minimum:

$1,000,000

See composite descriptions and index descriptions. The guidelines listed are representative of the product but are not considered restrictions. Specific client guidelines may differ.

Investment Team

Kenneth A. Harris, CFA
Kenneth A. Harris, CFA

Partner, Director of Fixed Income Portfolio Management, Portfolio Manager

2000 to Present: Denver Investments
1985 to 1999: Blue Cross and Blue Shield of Colorado, Treasurer
Education:

BBA – University of Arizona; MBA – University of Colorado at Denver
Member of CFA Institute and CFA Society Colorado

Nicholas J. Foley
Nicholas J. Foley

Vice President, Portfolio Manager, Municipal Credit Analyst/Trader

2012 to Present: Denver Investments
2010 to 2011: Bank of the West/BNP Paribas Group, Associate Portfolio Manager and Lead Fixed Income Trader
2009 to 2010: Janus Capital Group, Financial Analyst
2004 to 2008: Washington Mutual Bank, Senior Analyst
Education:

BA - Gonzaga University

Darren G. Hewitson, CFA
Darren G. Hewitson, CFA

Partner, Portfolio Manager

2008 to Present: Denver Investments
2008: 180 Connect, Accountant
2007: Munro & Noble Solicitors and Estate Agents, Accountant
Education:

BAcc – University of Glasgow, Scotland
Member of CFA Institute and CFA Society Colorado

Troy A. Johnson, CFA
Troy A. Johnson, CFA

Partner, Director of Fixed Income Research, Portfolio Manager, Credit Research Analyst

2007 to Present: Denver Investments
2002 to 2007: Quixote Capital Management, Portfolio Manager and Analyst
1993 to 2002: Invesco Funds Group, Inc., Senior Fixed Income Analyst
Education:

BS – Montana State University; MS – University of Wisconsin
Member of CFA Institute and CFA Society of Colorado

Steven G. Kindred, CFA, CPA
Steven G. Kindred, CFA, CPA

Vice President, Credit Research Analyst

2009 to Present: Denver Investments
2008 to 2009: Janus Capital Group, Equity Research Analyst
2007: Wasatch Advisors, Equity Analyst Intern
2003 to 2006: Deloitte & Touche LLP, Senior Auditor
Education:

BS and MAcc – Utah State University; MBA - Dartmouth College
Member of CFA Institute and CFA Society Colorado

William Oh, CFA, FRM
William Oh, CFA, FRM

Vice President, Securitized Debt Analyst/Trader

2012 to Present: Denver Investments
2010 to 2011: Nationwide Insurance, Finance Leadership Rotation Program
2009 to 2010: AEGON USA Investment Management, Corporate Credit Strategy Intern
2004 to 2008: One West Bank (Formerly Indymac Bank), Assistant Vice President, Buy-Side MBS & Whole Loan Trader
2002 to 2004: Bear Stearns Residential Mortgage, Business Development Analyst
2001 to 2002: Wells Fargo Bank, Premier Banking Officer and Trust Account Manager
Education:

BA – Claremont McKenna College; MBA – The University of Chicago
Member of CFA Institute and CFA Society Colorado

Daniel T. Schniedwind, CFA
Daniel T. Schniedwind, CFA

Vice President, Credit Research Analyst

2014 to Present: Denver Investments
2011 to 2014: AMI Asset Management, Credit Analyst
2010 to 2011: Mars Hill Partners, Analyst
2009: Oppenheimer & Co., Sales and Trading Intern
Education:

BA – Whittier College; MS – Indiana University
Member of CFA Institute and CFA Society Colorado

Gregory M. Shea, CFA
Gregory M. Shea, CFA

Vice President, Analyst

2008 to Present: Denver Investments
2004 to 2008: Lehman Brothers Asset Management, High Yield Credit Analyst
2003 to 2004: Banc of America Securities, Investment Banking Analyst
2001 to 2003: Bank of America, Bank Credit Analyst
Education:

BS & MSBA – Washington University
Member of CFA Institute and CFA Society Colorado

Daofu (Nick) Yu, CFA
Daofu (Nick) Yu, CFA

Vice President, Credit Research Analyst

2016 to Present: Denver Investments
2013 to 2016: Great West Financial, Credit Analyst/Portfolio Manager
2012 to 2013: Western Union, Foreign Exchange Trader
2011 to 2012: D.A. Davidson and Company, Research Associate
2006 to 2009: Oppenheimer Funds, Business Analyst-Operations
Education:

BS – University of Colorado; MS and MBA - University of Colorado at Denver
Member of CFA Institute and CFA Society Colorado

Drew D. Conrad, CFA
Drew D. Conrad, CFA

Vice President, Fixed Income Trader

2010 to Present: Denver Investments
2006 to 2008: SCM Advisors, High Yield and Leveraged Loan Trader and Analyst
2001 to 2006: AIG Investment Management, Fixed Income Analyst and High Yield Trader
Education:

BA – Rice University
Member of CFA Institute and CFA Society Colorado

*Mark McKissick’s CPA designation is inactive.

Performance (%)

  Monthly Returns (%)
Periods Ended: 12/31/2017
Annualized Returns (%)
Periods Ended: 12/31/2017
1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
Municipal Fixed Income (gross) 0.89 1.02 5.46 5.46 3.18 2.99 4.49
Municipal Fixed Income (net) 0.85 0.89 4.94 4.94 2.66 2.48 3.99
Bloomberg Barclays Capital 7 Year Municipal Bond Index 0.82 -0.22 4.49 4.49 2.4 2.44 4.31
Municipal Fixed Income Custom Index 0.82 -0.22 4.49 4.49 2.4 2.69 4.63
Municipal Fixed Income
Monthly Returns(%) as of 12/31/2017 Gross Net
1 Month 0.89 0.85
3 Months 1.02 0.89
YTD 5.46 4.94
Annualized Returns(%) as of 12/31/2017 Gross Net
1 Year 5.46 4.94
3 Years 3.18 2.66
5 Years 2.99 2.48
10 Years 4.49 3.99
Bloomberg Barclays Capital 7 Year Municipal Bond Index
Monthly Returns(%) as of12/31/2017 Gross Net
1 Month 0.82 -
3 Months -0.22 -
YTD 4.49 -
Annualized Returns(%) as of 12/31/2017 Gross Net
1 Year 4.49 -
3 Years 2.4 -
5 Years 2.44 -
10 Years 4.31
Municipal Fixed Income Custom Index
Monthly Returns(%) as of12/31/2017 Gross Net
1 Month 0.82 -
3 Months -0.22 -
YTD 4.49 -
Annualized Returns(%) as of 12/31/2017 Gross Net
1 Year 4.49 -
3 Years 2.4 -
5 Years 2.69 -
10 Years 4.63

Calendar Year Performance (%)

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
Municipal Fixed Income (Gross) 5.46 0.49 3.74 7.06 -1.46 5.56 9.25 2.45 13.08 0.24
Municipal Fixed Income (Net) 4.94 -0.01 3.22 6.53 -1.96 5.04 8.73 2.00 12.57 -0.22
Bloomberg Barclays Capital 7 Year Municipal Bond Index 4.49 -0.50 3.26 6.09 -0.97 4.20 10.14 4.63 7.61 4.59
Municipal Fixed Income Custom Index 4.49 -0.50 2.43 8.72 -2.17 5.70 12.31 4.04 9.87 1.50
Municipal Fixed Income
Year Gross Net
2017 5.46 4.94
2016 0.49 -0.01
2015 3.74 3.22
2014 7.06 6.53
2013 -1.46 -1.96
2012 5.56 5.04
2011 9.25 8.73
2010 2.45 2.00
2009 13.08 12.57
2008 0.24 -0.22
Bloomberg Barclays Capital 7 Year Municipal Bond Index
Year Gross Net
2017 4.49 -
2016 -0.50 -
2015 3.26 -
2014 6.09 -
2013 -0.97 -
2012 4.20 -
2011 10.14 -
2010 4.63 -
2009 7.61 -
2008 4.59 -
Municipal Fixed Income Custom Index
Year Gross Net
2017 4.49 -
2016 -0.50 -
2015 2.43 -
2014 8.72 -
2013 -2.17 -
2012 5.70 -
2011 12.31 -
2010 4.04 -
2009 9.87 -
2008 1.50 -

 

Data is based on the firm’s composite for this strategy. Past performance does not guarantee future results and future performance may be lower or higher than the performance presented, including the possibility of loss of principal. Composite returns for one year or greater are annualized.

Returns are computed and stated in U.S. dollars. Performance is calculated net of withholding taxes on foreign dividends and interest, if any, and reflect the reinvestment of dividends and other earnings.

Gross of fee returns are calculated gross of management and custodial fees and net of transaction costs. Net of fee returns are calculated net of management fees and transaction costs and gross of custodian fees. As of 1/1/15, net of fee returns were calculated by deducting the maximum applicable advisory fee in effect, pro-rated on a monthly basis. From 1/1/08 to 12/31/14, net of fee returns were calculated by deducting the maximum applicable advisory fee in effect, pro-rated on a quarterly basis. Prior to this date, net of fees returns were calculated using actual annual client fees, pro-rated on a quarterly basis.

From the inception of the product through 12/31/2014, the composite benchmark was the Bloomberg Barclays Capital 10-Year Municipal Index. The Bloomberg Barclays Capital 10-Year Municipal Index is an unmanaged index that includes investment grade (Moody’s Investor Services Aaa to Baa, Standard & Poor’s AAA to BBB) tax-exempt bonds with maturities between eight and twelve years. From 1/1/2015 to present, the benchmark is the Barclays Capital 5-Year Municipal Index. The index was changed to better reflect the strategy of the composite. The Bloomberg Barclays 5 Year Municipal Bond Index is a capitalization weighted bond index created by Bloomberg Barclays intended to be representative of major municipal bonds of all quality ratings with an average maturity of approximately five years. The Barclays Capital 10-Year Municipal Index is an unmanaged index that includes investment grade (Moody’s Investor Services Aaa to Baa, Standard & Poor’s AAA to BBB) tax-exempt bonds with maturities between eight and twelve years. Bloomberg Barclays is the source and owner of the Bloomberg Barclays Index data. See Terms of Use for additional disclosure.

Index returns are provided to represent the investment environment existing during the time periods shown. For comparison purposes, the index is fully invested, which includes the reinvestment of dividends and capital gains. The returns for the index do not include any transaction costs, management fees or other costs. Composition of each individual portfolio may differ from securities in the corresponding benchmark index. The index is used as a performance benchmark only, as Denver Investments does not attempt to replicate an index. See composite descriptions.

Denver Investment Advisors LLC (dba Denver Investments) claims compliance with the Global Investment Performance Standards (GIPS®). Denver Investments provides fundamental investment management services to various institutional and private investors and mutual funds.

Denver Investments is an independent investment advisor registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

See performance disclosure for a presentation that complies with the requirements of the GIPS standards. Please contact us to request a complete list and description of all firm composites.

Manager Commentary as of 12/31/2017

 

Market Overview

The year ended with a bang for the municipal market. After a fairly calm October, the first tax reform proposal was revealed in early November. At first, it appeared that the proposed reforms would leave municipals unscathed, but as analysts dug deeper, they found quite the opposite. While the tax-exempt status of municipal bonds wouldn’t be affected, the proposal would reduce the size of the market in other ways, such as doing away with pre-refunded bonds, which make up about 15% of the municipal bond market. This reduction of supply initially caused a strong market rally; however, it was nearly all erased as the proposal caused a large wave of issuance in December, before tax reform was enacted on January 1. Issuance for December easily set a record at $62.5 billion, surpassing the previous record of $54.7 billion, which was set amidst the last major tax overhaul in 1985.

Rates & Valuations: The 10-year AAA rated municipal bond yield ended the year at 2.01%, having ranged between 1.94% and 2.25% in the hectic post-Thanksgiving weeks. A yield of 2.01% from 10-year AAA rated municipal bonds is 83% of the yield offered by a the 10-year U.S. Treasury, which is in line with the offered 86% at the end of the third quarter.

 

Outlook & Positioning

Looking forward to 2018: The year ahead does not lack for monetary policy risk, both here in the United States and globally. As we touch decade lows in the unemployment rate, the market is currently pricing in approximately three rates increases by the Federal Reserve. At December 31, 2017, the 5-year U.S. Treasury yield was 2.21%, while the 30-year U.S. Treasury yield was 2.74%, making for a very flat yield curve.

One major implication for municipal bonds that we feel confident in forecasting is that supply should drastically drop in the first quarter of 2018. Many deals that were targeted for the start of 2018 were instead moved into December to get done ahead of tax reform. This, coupled with continued solid fund inflows, should provide a nice tailwind for the municipal sector over the next three months.

Credit: We remain positive about municipals. Slow, steady growth since the recession has made its way into increasing municipal revenues. At a high level, we remain more bullish about revenue bonds and issuers that have limited exposure to long-term liabilities.

Duration: The portfolio’s effective duration as of December 31, 2017 was 6.10 and its average maturity was 12.50 years.

 

The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will vary, and initial investments may be worth more or less than their original investment. To obtain current performance as of the most recent month-end and for important performance disclosures, please view the performance tab.

The Manager Commentaries contain certain forward-looking statements about the factors that may affect future performance. These statements are based on portfolio management’s predictions and expectations concerning certain future events and their expected impact on the strategy, such as performance of the economy as a whole and of specific industry sectors, changes in the levels of interest rates, the impact of developing world events, and other factors that may influence the future performance of the strategy. Portfolio management believes these forward-looking statements to be reasonable, although they are inherently uncertain and difficult to predict. Actual events may cause adjustments in portfolio management strategies from those currently expected to be employed.

All indices are unmanaged and investors cannot invest directly in an index. View index descriptions.

Changes at the Fed: A Focus on Monetary Policy

Denver Investments’ Fixed Income team discusses implications of the Fed’s monetary policy and what changes we should expect from the recently announced Fed Chair.

Fixed Income
Market Update -
January 2018

Read the latest insights on the fixed income market.

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