Portfolio managers share their outlook for the tax-exempt market

MILWAUKEE, WI, March 11, 2021 /24-7PressRelease/ — Employee-owned Baird announced that the Baird Short-Term Municipal Bond Fund (BTMIX) has received the 2021 Refinitiv Lipper Fund Award. The fund was named Best Fund Over 3-Years for the period ending November 30, 2020, among 40 short-term municipal debt funds. The Fund also received the award for the 5-Year period ended November 30, 2020, among 46 short-term municipal debt funds.

The Baird Short-Term Municipal Bond Fund is co-managed by Duane McAllister, CFA, Erik Schleicher, CFA, Joe Czechowicz, CFA and Lyle Fitterer, CFA, who joined the team in August 2019.

“This is the second year in a row that our municipal bond investment team has been recognized with this award,” said Baird Advisors Chief Investment Officer and Baird Funds President Mary Ellen Stanek, CFA. “We are proud of their hard work and this speaks to the competitive performance this team has consistently delivered to clients.”

For more than 30 years, the Refinitiv Lipper Fund Awards have honored funds and fund management firms that have excelled in providing consistently strong risk-adjusted performance relative to their peers. The merit of the winners is based entirely on objective, quantitative criteria. Find out more at www.lipperfundawards.com.

We took the opportunity to talk to portfolio managers Duane McAllister, CFA and Lyle Fitterer, CFA, Joe Czechowicz, CFA, and Erik Schleicher, CFA – Sr. Portfolio Managers. Following is a shortened version of that conversation. For the full conversation click here.

Economic growth is strong, more fiscal stimulus is on the way and inflation and interest rates are on the rise. Treasury and municipal yields are higher since year end – how much higher might rates go?

Duane: While it’s clear that some investors are concerned about the rise in rates, there are just as many that welcome the chance to invest at higher yield levels. The continuing inflows to fixed income funds is the proof. Our view is that rather than fear higher rates, investors should see it as a healthy sign for the economy and ultimately very good for all types of investors. Bonds are purchased for both income and safety. The more income, the more protection they provide against market volatility and turmoil.

Are there any segments of the curve that you find particularly attractive now? And if so, why? Also, which sectors of the market look the most interesting to you?

Lyle: We are always looking across the entire curve for opportunities, but the intermediate segment of the curve, from roughly 7 – 12 years, currently offers the most advantageous roll-down benefit. Curve positioning is always important, but it creates an even larger contribution to total return when starting yields are low and the curve is upward sloping, as it is today. In rough numbers, a nine-year AAA bond will provide a yield of close to 1.0%, but the roll-down benefit will be almost as much, assuming the curve slope remains the same over the next year. That has been a focus for curve positioning in our intermediate funds and we even have a modest overweight in the 5 year range in the Short Muni Fund for the same reason – to maximize the roll-down benefit.

Joe: From a sector perspective, we have been spending a lot of time looking at hospitals and higher education. I cover the hospital sector for the team and despite the significant COVID-19 challenges of the past year, most of the hospitals we own did an impressive job managing through the crisis. Revenues rebounded nicely once they could safely offer elective surgery again and most did a very good job of controlling expenses.

Duane: COVID-19 has presented many challenges to colleges, both public and private. Most had to move to either all virtual or a hybrid model of virtual and in-class learning – which, quite frankly, very few schools were adequately prepared for. In addition to falling enrollment and having fewer students on campus, less auxiliary revenue was generated.

It appears that state and local governments may get as much as $350B in the next fiscal stimulus package. Won’t that go a long way to supporting municipal credits?

Erik: It will, and of course it comes on top of the significant support provided in the CARES Act last spring and the $900B COVID relief bill at year end. In the fiscal package being negotiated now, there is also money for K-12 schools, transit agencies, airports, hospitals and more. So, there will be very broad support for municipal entities. Whether they need all this additional money is debatable, since we have seen a sharp rebound in tax revenues in most states, with many running ahead of where they were pre-pandemic. That said, while the fundamental backdrop for municipal credit is solid, not all credits are recovering equally, and bottom-up credit work is still very important.

Joe: A good example is some of the weaker state credits such as Illinois and New Jersey. While credit spreads have rallied sharply across the entire municipal market, as they have in the corporate sector, the challenges that these two states have faced for years have not gone away. In fact, their pension challenges have gotten worse as rates have come down and they face lingering structural challenges that will eventually need to be addressed.

About Baird Funds
Baird Funds is a no-load mutual fund family with more than $88 billion in assets as of December 31, 2020. The Baird Funds offer proven track records and a diverse suite of portfolios across fixed income and equity asset classes. The ten bond funds and six equity funds feature competitive fees and are managed with a careful focus on risk control. For more information, visit www.bairdfunds.com

About Baird
Putting clients first since 1919, Baird is an employee-owned, international wealth management, asset management, investment banking/capital markets, and private equity firm with offices in the United States, Europe and Asia. Baird has approximately 4,600 associates serving the needs of individual, corporate, institutional and municipal clients and more than $305 billion in client assets as of June 30, 2020. Committed to being a great workplace, Baird ranked No. 13 on the Fortune 2020 100 Best Companies to Work For list. Baird is the marketing name of Baird Financial Group. Baird’s principal operating subsidiaries are Robert W. Baird & Co. Incorporated in the United States and Robert W. Baird Group Ltd. in Europe. Baird also has an operating subsidiary in Asia supporting Baird’s investment banking and private equity operations. For more information, please visit Baird’s website at www.rwbaird.com.

Performance data represents past performance and does not guarantee future results. The investment return and principal value of the investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance data may be lower or higher than the data quoted. To read the fund’s prospectus or to obtain the fund’s performance to the most recent month end, SEC 30-day yield information, any sales charges, maximum sales charges, loads, fees, total annual operating expense ratio, gross of any fee waivers or expense reimbursements as stated in the fee table contact Baird directly at 866-442-2473 or visit the fund’s webpage here. Investment minimum for the institutional class is $25,000.

Investors should consider the investment objectives, risks, charges and expenses of each fund carefully before investing. This and other information is found in the prospectus and summary prospectus. For a prospectus or summary prospectus, contact Baird directly at 866-442-2473 or contact your Financial Advisor.

The Refinitiv Lipper Fund Awards, granted annually, highlight funds and fund companies that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The Refinitiv Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. The fund with the highest Lipper Leader for Consistent Return (Effective Return) value in each eligible classification wins the Refinitiv Lipper Fund Award. For more information, see lipperfundawards.com Although Refinitiv Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Refinitiv Lipper.

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