High Yield Municipal Strategy

Inception Date: FEB 1, 2024

Seeks to provide high current income exempt from regular federal income taxes. Capital appreciation is a secondary objective when consistent with the Strategy's primary objective.

Strategy at a glance

  1. The above are not investment guidelines or restrictions and are subject to change without notice.

  2. The information provided is not to be construed as a recommendation or an offer to buy or sell or the solicitation of an offer to buy or sell any fund or security.

Investment Philosophy

The team believes the high yield municipal securities market offers the potential for attractive returns that have lower volatility and are less correlated to corporate high yield bonds.

The size, depth and other characteristics of the state and national municipal securities markets offer a broad opportunity set of individual issuers in securities that may be undervalued relative to the general market. The team believes scale and intricacy of the municipal securities market often results in pricing anomalies and other inefficiencies that can potentially be identified and capitalized on through trading strategies.

 

Strategy Highlights

  • Security Selection

    The municipal market is complex and highly fragmented, and these inefficiencies create potential opportunity. The process examines various aspects of the market to make informed decisions, including the evaluation of historical default rates and average credit spreads by industry and sector.

  • Taking a Long-Term View

    Credit quality and yield curve positioning are actively adjusted over time.

  • Diligent Underwriting

    If issuers choose not to obtain credit ratings from major credit agencies, rigorous credit analysis is applied.

  • Use of Leverage

    The tactical use of tender option bond trusts (TOBs) can help enhance risk-adjusted returns over time.

  • Diversification

    A diversified portfolio by sector, credit, maturities and position size.

Strategy at a glance

  1. The above are not investment guidelines or restrictions and are subject to change without notice.

  2. The information provided is not to be construed as a recommendation or an offer to buy or sell or the solicitation of an offer to buy or sell any fund or security.

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  1. Risk Disclosures

  2. All investments involve the risk of loss of principal.

  3. The First Eagle High Yield Municipal Strategy (“The Strategy”) is new and may not be successful under all future market conditions. The Strategy may not attract sufficient assets to achieve investment, trading or other efficiencies.

    The value of the strategy’s portfolio may fluctuate in response to the risk that the issuer of a bond or other instrument will not be able to make payments of interest and principal when due. In addition, fluctuations in interest rates can affect the value of debt instruments held by the strategy. An increase in interest rates tends to reduce the market value of debt instruments, while a decline in interest rates tends to increase their values. Longer duration instruments tend to be more sensitive to interest rate changes than those with shorter duration. 

    The strategy invests in in high yield, fixed income securities that, at the time of purchase, are non-investment grade. High yield, lower rated securities involve greater price volatility and present greater risks than high rated fixed income securities. High yield securities are rated lower than investment-grade securities because there is a greater possibility that the issuer may be unable to make interest and principal payments on those securities. High yield securities involve greater risk than higher rated securities and portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. 

    Strategies that invest in bonds are subject to interest-rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk, in which the bond issuer may fail to pay interest and principal in a timely manner, or that negative perception of the issuer’s ability to make such payments may cause the price of that bond to decline.

    Municipal bonds are subject to credit risk, interest rate risk, liquidity risk, and call risk. However, the obligations of some municipal issuers may not be enforceable through the exercise of traditional creditors' rights. The reorganization under federal bankruptcy laws of a municipal bond issuer may result in the bonds being cancelled without payment or repaid only in part, or in delays in collecting principal and interest.

  4. Disclosures

  5. These are not investment guidelines or restrictions and will be subject to change. Actual portfolio will differ.

    The information is not intended to provide and should not be relied on for accounting or tax advice.  Any tax information presented is not intended to constitute an analysis of all tax considerations.

    FEF Distributors, LLC (“FEFD”) (SIPC), a limited purpose broker-dealer, distributes certain First Eagle products. FEFD does not provide services to any investor, but rather provides services to its First Eagle affiliates. As such, when FEFD presents a fund, strategy, or other product to a prospective investor, FEFD and its representatives do not determine whether an investment in the fund, strategy or other product is in the best interests of, or is otherwise beneficial or suitable for, the investor. No statement by FEFD should be construed as a recommendation. Investors should exercise their own judgment and/or consult with a financial professional to determine whether it is advisable for the investor to invest in any First Eagle fund, strategy, or product.

  6. Definitions

  7. Diversification does not guarantee investment returns and does not eliminate the risk of loss. 

    A debt instrument's "duration'' is a way of measuring a debt instrument's sensitivity to a potential change in interest rates.

  8. Benchmark Definitions

  9. Indices are unmanaged and do not incur management fees or other operating expenses. One cannot invest directly in an index.

    The S&P Municipal Yield Index measures the performance of high yield and investment grade municipal bonds. Index constituents are market value-weighted and adjusted for credit rating and concentration limits.

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  • John Miller

    Head and Chief Investment Officer of High Yield Municipal Credit Team
    Industry start:  
    1993
    Year joined:  
    2024
  • Bryce Pickering headshot

    Bryce Pickering

    Head of High Yield Municipal Credit Trading
    Industry start:  
    2001
    Year joined:  
    2023

Our Process

The team emphasizes a fundamental bottom-up research approach that drives the identification of investment opportunities in all market environments. The three phases of the process are:

  • 01

    Bottom Up Fundamental Analysis

    Team to screen for issuers that meets the investment team's fundamental tests of creditworthiness 

    Team favors those issuers with attractive return potential from a combination of price improvement and yield through solid coverage of debt service and a priority lien on hard assets, dedicated revenue streams or tax resources

    Strategic inputs include:

    • Credit analysis
    • Security structure
    • Sector analysis
    • Yield curve positioning
  • 02

    Portfolio Construction

    Team seeks to invest in a large number of sectors, states and specific issuers in order to help create a diversified portfolio and help mitigate the portfolio from events that may affect any individual industry, geographic location or credit

    Team seeks to limit exposure to individual credits, mitigate interest rate risk, and maximize overall call protection

    Portfolio assessment:

    • Position sizing
    • Performance and attribution analysis
    • Duration management
    • Leverage analysis
  • 03

    Risk Management and Sell Discipline

    Team may sell a security if, among other factors, it:

    • Determines a security is overvalued
    • Detects credit deterioration
    • Modifies its portfolio strategy, such as sector or state allocation

    Team may also sell a security when it exceeds the portfolio’s diversification targets

  1. The investment process may change over time. The information set forth above is intended as a general illustration of some of the criteria the investment team considers in selecting securities. Not all investments will meet such criteria.

    These are among factors to be considered when deciding whether to sell, this is not a comprehensive list. A debt instrument’s “duration’’ is a way of measuring a debt instrument’s sensitivity to a potential change in interest rates.

     

  2. Risk Disclosures

  3. All investments involve the risk of loss of principal.

  4. The First Eagle High Yield Municipal Strategy (“The Strategy”) is new and may not be successful under all future market conditions. The Strategy may not attract sufficient assets to achieve investment, trading or other efficiencies.

    The value of the strategy’s portfolio may fluctuate in response to the risk that the issuer of a bond or other instrument will not be able to make payments of interest and principal when due. In addition, fluctuations in interest rates can affect the value of debt instruments held by the strategy. An increase in interest rates tends to reduce the market value of debt instruments, while a decline in interest rates tends to increase their values. Longer duration instruments tend to be more sensitive to interest rate changes than those with shorter duration. 

    The strategy invests in in high yield, fixed income securities that, at the time of purchase, are non-investment grade. High yield, lower rated securities involve greater price volatility and present greater risks than high rated fixed income securities. High yield securities are rated lower than investment-grade securities because there is a greater possibility that the issuer may be unable to make interest and principal payments on those securities. High yield securities involve greater risk than higher rated securities and portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. 

    Strategies that invest in bonds are subject to interest-rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk, in which the bond issuer may fail to pay interest and principal in a timely manner, or that negative perception of the issuer’s ability to make such payments may cause the price of that bond to decline.

    Municipal bonds are subject to credit risk, interest rate risk, liquidity risk, and call risk. However, the obligations of some municipal issuers may not be enforceable through the exercise of traditional creditors' rights. The reorganization under federal bankruptcy laws of a municipal bond issuer may result in the bonds being cancelled without payment or repaid only in part, or in delays in collecting principal and interest.

  5. Disclosures

  6. These are not investment guidelines or restrictions and will be subject to change. Actual portfolio will differ.

    The information is not intended to provide and should not be relied on for accounting or tax advice.  Any tax information presented is not intended to constitute an analysis of all tax considerations.

    FEF Distributors, LLC (“FEFD”) (SIPC), a limited purpose broker-dealer, distributes certain First Eagle products. FEFD does not provide services to any investor, but rather provides services to its First Eagle affiliates. As such, when FEFD presents a fund, strategy, or other product to a prospective investor, FEFD and its representatives do not determine whether an investment in the fund, strategy or other product is in the best interests of, or is otherwise beneficial or suitable for, the investor. No statement by FEFD should be construed as a recommendation. Investors should exercise their own judgment and/or consult with a financial professional to determine whether it is advisable for the investor to invest in any First Eagle fund, strategy, or product.

  7. Definitions

  8. Diversification does not guarantee investment returns and does not eliminate the risk of loss. 

    A debt instrument's "duration'' is a way of measuring a debt instrument's sensitivity to a potential change in interest rates.

  9. Benchmark Definitions

  10. Indices are unmanaged and do not incur management fees or other operating expenses. One cannot invest directly in an index.

    The S&P Municipal Yield Index measures the performance of high yield and investment grade municipal bonds. Index constituents are market value-weighted and adjusted for credit rating and concentration limits.

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