OUR TAX-EXEMPT BOND PHILOSOPHY

KKRA has a long tradition of managing tax-exempt or municipal bonds for taxable portfolios. This is a market that requires a great deal of knowledge and on-going attention.

Our philosophy for managing portfolios containing tax-exempt bonds recognizes that clients anticipate certain characteristics when they allocate funds to this asset class:  income generation, stability of investment returns, and a high level of liquidity.  Our investment process and strategy described below are designed to deliver competitive returns consistent with these characteristics.

OUR TAX-EXEMPT BOND INVESTMENT PROCESS

  • Analyze the shape of the yield curve to determine whether to emphasize shorter or longer durations within our ten-year maximum maturity scope
  • Purchase securities from large, highly liquid markets for optimal flexibility
  • Emphasize investment grade bonds (rated “A” or better by a major rating firm) to limit credit risk
  • Buy tax-exempt issues from the state of residence to either further reduce state income taxes or hedge against such a tax (as in the State of Washington)

TAX-EXEMPT BOND INVESTMENT STRATEGY

KKRA focuses exclusively on a laddered tax-exempt bond strategy that limits maturities to ten years or less as we believe that there is ample evidence to suggest that this approach to debt management minimizes risk while producing competitive returns.

History has shown that the majority of the yield in tax-exempt bond portfolios comes from securities with maturities of ten years or less. Over time, longer-term bonds have generated slightly higher yields than shorter-term bonds, but have done so with significantly more risk.  

Our fixed income portfolios for tax-exempt clients are comprised of highly marketable, investment-grade tax-exempt securities with maturities of ten years or less. Although portfolios are not identical, bonds of similar credit quality and maturity are selected for each client portfolio.

KKRA believes strongly that investors do not have to take the risk of investing in longer-term maturities, but rather can take less investment risk and achieve similar returns with shorter maturities by investing in issues with maturities of ten years or less.

The portfolio characteristics of our investment process are shown below:

 
CLIENT OBJECTIVES
Income, Safety and Liquidity
 
PORTFOLIO DESIGN 

Maturity No maturities longer than 10 years
Maturity Schedule Laddered and targeted to income needs 
Average Maturity 4-5 years
Emphasis Washington issues for in-state residents, otherwise appropriate state
Leverage No use of leverage
Currency US Dollar
Security Lending None

 ISSUE CONSTRAINTS  
Issue Quality "A" or higher by Moody's or Standard & Poor's - some non-rated issues 
Security Liquidity No non-marketable instruments
Diversification No issue greater than 5% of the portfolio

GENERAL 
Asset Custodian Federally-chartered bank with superior custodial system
Communications Telephone, e-mail and in-person meetings
Reports Customized, hard copy or disk
Delivery of Reports Mail, overnight delivery, fax or e-mail
Guidelines Annually reviewed or updated when necessary