"I love muni's as an asset class," says Mark Martiak, echoing the view of almost no one Breakout has spoken to in its 18 months of existence. Of such contrarianism is investment success borne; it's worth the time to hear what's driving Martiak's enthusiasm.
As the Senior Vice President of Premier Wealth/First Allied Securities sees it, Municipal Bonds give investors stability of income in a volatile market for stocks and a yield environment for Treasuries. According to FMSBonds.com 10-year maturity municipal bonds can range in yield from 2.3% for AAA to 3.2% for A-rated junk. Push the maturity out to 30-year and you can get over 5% on your money. Unless of course they default.
The default issue looms large for muni's, obviously. Ever since Meredith Whitney's controversial and widely misunderstood call on 60-minutes back in 2010 municipal bonds have been thought untouchable by many. Martiak says that works in investors favor by keeping the supply of muni's lower than it otherwise should be, making the bonds trade more dear than they otherwise might.
The "day of reckoning" for municipals has yet to arrive. Martiak notes that the market is $3.7 trillion and only $900 million worth of muni's defaulted in the first quarter of this year; a failure rate which would be the envy of most industries.
Another kicker on the appreciation side is the looming fiscal cliff. "If the Bush tax cuts sunset as we anticipate they might on December 31st, investors only have one asset class where they can get tax free returns."
Municipals aren't most equity-hounds' cup of tea but they're worth a look. If Martiak is right, the municipalities have largely gotten their houses in order and are a decent alternative in a summer of squirrelly equity and Treasury markets.