Municipal Bond Forum
Yield strategy
Q
It seems to me that your firm promotes a yield strategy over a total return strategy. I am interested to know if there is any research that demonstrates that you could have a very low total return year after year while realizing a much higher yield and growing your cash at a steady rate when all is said and done.
A
James A. Klotz responds:
We are not aware of any specific research in this area, but on this subject, a little of your own research and a bit of common sense should carry the day.
Assume that 10 years ago you invested $100,000 in a AAA-insured, long-term bond. The coupon rate would have been approximately 6%. Compare the $6,000 per year in cash flow with the best high-quality municipal bond fund over the same period.
The AAA bond provided $6,000 of reinvestable tax-free income every year and is now worth more than 100. You will find the annual total return of the bond fund will pale in comparison.
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The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.