1) Our Perspective
Munis and the 2016 Presidential Election - SEPTEMBER 2016
Ronald Schwartz, CFA
Managing Director,
Senior Portfolio Manager,
Tax-Exempt
Ron is a Senior Portfolio
Manager focused on the TaxExempt Strategies. He has
worked in the investment
management industry since
1982. Ron received a B.A. in
Business Administration from
Adelphi University and is a CFA
Charterholder and a member of
the CFA Society of Orlando.
We are now less than two months away from the 2016 U.S. election. Because of the dependence
of municipal bonds on their tax-exempt status, potential changes in tax policy are a political risk
that could have a significant impact on muni yields. While neither Clinton nor Trump have tax
reform proposals that specifically target eliminating the municipal bond tax exemption, both of their
tax proposals if enacted would have an effect of reducing the value of tax exemption either
through lower tax rates or by reducing caps for deductions. Trump supports lowering marginal tax
rates while Clinton would like to raise tax rates and limit deductions. No matter who comes out on
top in November, we continue to believe that it is highly unlikely that any significant tax reform that
impacts the tax exemption of municipal bonds will be enacted as it would require full participation
by Congress and the White House. According to the PredictWise and recent polls, it appears that
we will continue to have a divided government with Republicans at a minimum maintaining control
of the House of Representatives.
According to PredictWise, the most likely outcomes are
a Democratic president and Senate and a Republican House
President
Democratic
Republican
House
Senate
77%
23%
11%
89%
60%
41%
Source: PredictWise election probabilities as of 9/30/16.
House probabilities based on the probability that the Democrats win the majority, and
the Republican probability is taken as 100% minus that figure.
Scott Andreson
Director, Municipal Research
Scott is the Director of Municipal
Research for Seix Investment
Advisors. He has more than 17
years of investment experience.
He earned his MPA from USC
and is a current officer of the
National Federation of Municipal
Analysts.
CONTRIBUTORS
Dusty Self
Managing Director,
Senior Portfolio Manager,
Tax-Exempt
Phillip Hooks, CFA
Vice President,
Municipal Credit Research
As you can see in the chart on the next page, generally, since 1969, bondholders do better under
Republican presidents, while stocks perform better under Democrats. Interestingly, the most
recent presidential elections have had basically no impact on tax exempt yields or Muni/Treasury
ratios, despite having a litany of tax reform proposals. We believe this is because Republicans
and Democrats strongly disagree about what the goals of any tax reform should be, making any
sweeping reform extremely difficult, if not impossible, even if one party controls the White House
and Congress. In addition, members of Congress generally understand the importance of tax
exempt bonds for funding the majority of infrastructure projects in their districts, and are unlikely
to enact tax reform that diminishes capital spending. Despite several Congressional tax reform
study groups over the past several years, no grand bargain on tax reform has been enacted that
impacts municipal bonds negatively and we think this will remain the course over the next several
years as D.C. remains mired in political gridlock. Therefore, it is likely the demand for tax exempt
income will remain strong due to the continuation of the current high income tax rates and unlikely
passage of any tax reform that impacts municipal bonds.
2) Our Perspective
Munis and the 2016 Presidential Election - SEPTEMBER 2016
All figures are average annual rates.
Source: Source: J.P. Morgan, as of 8/1/16, data pulled 8/4/16.
As we approach our sixth anniversary for publishing the Muni Monthly, we thought it would be
useful to survey our readers this month. This survey should take you less than five minutes. All
responses will be kept strictly confidential and we look forward to sharing the results with you next
month. Thank you for your readership and continued support of the Seix Investment Advisors’
municipal team.
Please use the link below to access the survey
Muni Monthly Reader Survey
The assertions in this perspective are Seix Investment Advisors’ opinion.
Investment Risks: All investments involve risk. Debt securities (bonds) offer a relatively stable level of income, although bond prices will fluctuate providing the
potential for principal gain or loss. Intermediate-term, higher-quality bonds generally offer less risk than longer-term bonds and a lower rate of return. Generally,
a portfolio’s fixed income securities will decrease in value if interest rates rise and vice versa. A portfolio’s income may be subject to certain state and local
taxes and, depending on your tax status, the federal alternative minimum tax. There is no guarantee a specific investment strategy will be successful.
This information and general market-related projections are based on information available at the time, are subject to change without notice, are for
informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for
individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not
intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or
conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advice. Seix
Investment Advisors does not provide legal, estate planning or tax advice. Investors are advised to consult with their investment processional about their
specific financial needs and goals before making any investment decisions.
Past performance is not indicative of future results.
©2016 Seix Investment Advisors LLC. Seix Investment Advisors is a registered investment adviser with the SEC and a member of the RidgeWorth Capital
Management LLC network of investment firms.