As fundamental municipal credit managers, we believe that research-driven underwriting can help us identify investment opportunities in out-of-favor areas with wide dispersions in credit spreads, both across sectors and among individual names. One area we believe is particularly rich with opportunity is the healthcare sector, which underperformed in 2025.¹ Investors grew concerned about the policy ramifications of Trump’s tax-and-spending bill, including lower reimbursement rates, lower utilization rates and pressure on federal and state aid, as well as the impacts of immigration and tariffs on labor and operating costs.

Cuts to Medicaid and Medicare—which comprise approximately 44% of US hospital spending²—outlined in the bill will total more than $1 trillion through 2034³ and are estimated to eliminate healthcare coverage for up to 15 million people.⁴ Though set to begin in 2026, many of these cuts will ramp up over time, which we believe will give hospitals, healthcare providers and insurance carriers time to adjust their operating models. The delayed nature of the cuts will also give Medicaid and proponents of the Affordable Care Act opportunities to push back or eliminate the implementation of the cuts. Lastly, we believe an aging population in need of chronic disease management and long-term care will further support healthcare utilization.

Within this sector, we believe that larger, well-managed hospital systems, specialty-care hospitals and hospitals that provide essential care in geographies with population growth and a favorable payer mix are more likely to be resilient in the face of policy changes. These policy changes may also drive consolidation of the hospital space as smaller hospital systems and providers in rural areas seek financial stability and access to capital. By identifying what we view as essential-care providers in larger, well-funded geographies or smaller hospitals that may be well positioned to be acquired by larger providers with a more favorable payer mix, we believe we can identify credits with attractive yields and prices and lower default risk.

Lower mortgage rates and slowing price growth have supported momentum for both new- and existing-home sales in the US.¹ New-home sales activity has been bolstered by easing mortgage rates and ongoing homebuilder incentives, illustrating both the pent-up demand for housing and the commitment of homebuilders to support the market.² Existing-home sales, which account for the vast majority of US housing market activity, have also picked up but remain well below historical trends.³

The combination of sluggish existing home sales and homebuilder incentives has also narrowed the historical price premium of new homes relative to existing homes. This has been a drag on transitional lending activity, which has declined to 6.8% of total home sales from a peak of 8.6% in 2022.⁴ We believe this highlights the importance of distinguishing between a “market of homes” and the “housing market”—which is to say that the sluggishness of existing-home sales at the national level doesn’t mean that move-in ready, well-priced homes in desirable neighborhoods are going to sell slowly.

Structural tailwinds remain intact, however, and we expect the demand for renovation capital to persist given that the median age of owner-occupied homes is 41 years.⁵ Many of the homes that do change hands are in need of renovation; we see significant opportunity to lend capital to experienced developers that can renovate homes within supply-constrained existing communities, which are frequently selling at attractive price points relative to new homes and has the potential for solid profit margins.