Insight & Commentaries

The gardener must sow seed in fertile ground for a garden to grow. Once planted, young seedlings must be cared for and cultivated. If all goes well, the seed grows into an abundant garden, while also producing the seed and nutrients for next year’s plantings. In this way, the gardener achieves a sustained cycle of growth, and everyone benefits. The same is true for a business. Like a seed, a firm must sow investments in assets that yield a profit if it hopes to grow. Additionally, investments will be subject to risk and unknowns, some will produce profit, and some…

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Municipal bonds generally lagged Treasuries in June given already tight spreads. This month we look at evolving yield opportunities and how municipal bond markets could play out through the summer. Munis were virtually unchanged for the month of June, underperforming U.S. Treasuries. Flows into Muni Mutual Funds continued but seem to be slowing as we believe the market remains overvalued. As the summer season begins and issuance slows, Munis may resume outperformance due to a supply/demand imbalance and a thin market.

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As the economy reopens, we believe growth is set to surge. The United States is well along the path on vaccination, which is unleashing months of pent-up demand. Meanwhile, other parts of the world are lagging in vaccinations and confronted with potential challenges, including a stronger dollar. Given continued signs of progress and growth in the United States, we refocus tactically around domestic and high-quality assets. We also maintain a tactical overweight to equity over bonds, given incoming data as we enter the third quarter.

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Dividend growers outperformed all dividend categories for the past 48 1/4 years with less risk. This is our conclusion based on data provided by Ned Davis Research. The research focuses on dividend payers, non-dividend payers, and dividend cutters. Note that the pattern of dividend growers outperformance holds for both the entire period of analysis and each sub-period (First Table). It also holds that growers experienced lower volatility for both the entire period and each sub-period (Second Table). In this note, we address why we think this phenomenon exists and what it could mean to investors. Return By Dividend Category (Annual)…

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Is there a way for bond investors to win if interest rates rise? We think laddering bonds is one way to navigate an uncertain and changing environment. First, we must start with a simple fact. Nobody knows for sure what will happen to interest rates in the future. There are potential ranges of plausible outcomes, but in reality, the future direction of interest rates is unknowable. What is knowable is today’s level of interest rates. So, an investor interested in knowing the nominal dollar return of a T-bill or zero-coupon U.S. Treasury can know that future return with certainty today….

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Illusion and Reality

Our economy grows decade to decade, with corporations capturing an increasing share of global income in the form of profits in recent years. Along the way, low interest rates prompted growth, encouraged risk-taking, and pumped up the value of future profits. It is not surprising, then, that stocks have enjoyed a historic rise, achieving great returns far above other asset classes. Not even a global pandemic was able to short-circuit this wealth creation process. In this week’s commentary, we revisit an old idea — namely that real factors dominate growth and stock returns in the long-run, while illusory factors can…

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Municipals continued to outperform in April, with yields falling by up to 16 basis points (bps) compared to U.S. Treasury yields decreasing by up to 9 bps. Key Points: Despite elevated Tax-Exempt Muni issuance, Munis continue to rally and outperform their U.S. Treasury and Corporate bond counterparts. The Muni Market continues to experience record-setting fund inflows that are fueling unrelenting demand, outstripping this elevated supply. Anticipating higher future income tax rates, investors continue to flock to Munis, even though other fixed income investments offer a better value proposition.

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To buy quality stocks that increase dividends regularly is a time-honored investing practice, and for good reason. This simple strategy takes a long-term view of investing and focuses on the dividend, not the stock price, which can help some investors maintain perspective. The passive income generated from dividend growth also has two side benefits. First, it focuses your investment strategy on cash-generating, growing companies. Second, it tends to lead to quality businesses that are neither too young nor too old. Why is this so? Almost by definition, a dividend-growing company tends to cover expenses with rising cash flow. And which…

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Municipals continued to outperform in April, with yields falling by up to 16 basis points (bps) compared to U.S. Treasury yields decreasing by up to 9 bps. Key Points: • Muni Mutual Funds again added to record inflows for the month• Demand has been fueled by rating agencies revising sector outlooks to the upside, Federal Stimulus funds making their way to issuers, and plans for tax hikes.

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The U.S. stock market has been on a tear of late, rising 56% in value, or $18 trillion, in the last year. Two-thirds of the gain came in the six months since October. Surging stock values mirror last spring’s rapid plunge, leaving many feeling elated, unnerved, and anxious. Are expectations for the world ahead justified and fairly factored into stock prices? Or is the bull run reflecting unrealistically high hopes? A Pretty Penny In our view, valuations are full. By most metrics, we see stock values at high levels. Just look at the value of U.S. stocks at $48 trillion…

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Munis returned to outperforming in March, with yields falling by up to 5 basis points (bps) across the curve compared to U.S. Treasury yields rising by up to 30 bps. Inflows into Muni Mutual Funds are on their fastest pace on record to start a year. This unprecedented demand has caused Munis to maintain their rich valuations vs. other fixed income asset classes. In addition, the American Rescue Plan Act’s aid to Muni issuers is easing credit concerns, drawing back investors who may have been wary of the market.

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Leverage and Quality

It is essential not to overlook critical assumptions. One of the most basic stock investing beliefs is that firms will continue to exist — firms do not live forever. Beginning as a start-up and ending in decline, firms undergo many changes over their lives. An idea becomes a business that generates growing profits and revenue. As a result of sound investing, the company continues to grow, finds new markets, and fends off competitors. At some point, the demand for the firm’s product or service slows, competition erodes advantages, and the business shrinks. In an age of rapid technological change and…

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