Today on the podcast, Rusty and Robyn are joined by Daryl Clements, Municipal Portfolio Manager at AllianceBernstein. Daryl Clements joined AB in 2002 from a role in credit research. Drawn by the firm's reputation and potential for opportunity, he has played a key role in pulling the municipal market forward through relentless innovation. For Clements, active management means leveraging fundamental and quantitative research to reduce volatility and produce better outcomes. AB has been a leader in using completion funds for the construction of municipal SMA portfolios. Further innovations included developing proprietary research and trading tools for the municipal bond market. The result? Faster, more efficient portfolio construction at AB. Clements relishes change, evolution and the drive to become the number-one bond manager of choice. “We are not a static group,” he says. “We are not happy where we are, ever. We are always moving forward and changing things. We want to seek out differentiation.”

Key Takeaways

• [03:13] - Daryl’s professional background and what led him to his current role at AllianceBernstein.
• [04:40] - Learn more about AllianceBernstein and the secret to its longevity.
• [05:54] - What are some of the key themes, and most significant trends, Daryl is seeing currently influencing the Muni Bond market?
• [07:54] - How does Daryl anticipate changes in tax policies, Federal infrastructure spending and any other policies impacting Muni Bond valuations and investor demand? What is he watching out for right now?
• [11:31] - What are the 3 reasons it pays to be Active as a Muni investor? What are some specific examples of how these add value?
• [15:06] - What criteria does Daryl emphasize when evaluating Muni issuers?
• [16:27] - How does Daryl balance the pursuit of higher-yields with the need to manage credit risk?
• [18:32] - How should one decide when to rotate into different sectors, or increase Treasury holdings, within a Muni portfolio?
• [22:42] - What strategies does Daryl employ to capitalize on the inefficiencies of the Muni market?
• [23:56] - What is AllianceBernstein’s technology The AbbieOptimizer?
• [28:26] - Looking ahead, what challenges and opportunities does Daryl see for Active Municipal Bond managers?
• [30:52] - How are big picture things, like climate change and demographic shifts, influencing his investment decisions in the Muni market?
• [33:37] - Is there anything else that Daryl thinks advisors and investors should know about the Muni market?
• [35:26] - What is currently Daryl’s favorite investment idea?

Quotes

[07:17] - “If I look at Active Managers in the Municipal market, versus Passive Managers, Active Managers outperform Passive 98% of the time in a rolling three-year period. Over two year periods, it’s 89% of the time, so we’re trying to get investors focused on Active Management and what that means to them.”  ~ Daryl Clements

[26:53] - “We run [the AbbieOptimizer] multiple times a day. That allows us to now build portfolios in 10 days, not 50 or 60 days, that’s the speed concept of it, less cash drag in a portfolio. Also, we are buying bonds at an average discount. As a liquidity provider, we are getting to those bonds faster than anybody else. We are able to provide execution alpha, which when you combine the two, is worth about 40-50 basis points.”  ~ Daryl Clements

Links

• Daryl Clements on LinkedIn
• AllianceBernstein
• This Week in Muni Land
• “Honky Tonk Highway” by Luke Combs

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