"Thornburg Intermediate Term Municipal Strategy focuses on identifying attractive value in the investment-grade municipal bond market. The portfolio generates a higher dividend than our Limited Term Municipal Strategy by pushing further out the yield curve, using a 20-year ladder of bond maturities. We apply a strict discipline of fundamental credit research — monitoring the existing portfolio at all times — while searching the market for opportunities. We strive to produce an attractive dividend while simultaneously avoiding the long maturities that are most vulnerable to interest-rate swings."
– Nick Venditti
We build a portfolio of staggered maturities so that a portion will mature each year. Money from maturing bonds provides an organic source of cash flow, and is typically reinvested in longer-maturity bonds at the top range of this intermediate ladder.
Laddering tends to perform well against other strategies because it captures price appreciation as bonds age and their remaining life shortens, and it reinvests principal from shorter, lower-yielding bonds into longer, higher-yielding bonds.
The strategy’s laddered structure is one of many important contributors (credit research also among them) to the total return an investor receives over an appropriate holding period.
In bond investing, nothing is more important than determining whether the party to whom you propose to lend money has the ability and willingness to pay you back in full and on schedule.
We conduct thorough, bottom-up credit research on every bond we purchase, both to understand the ability of the issuer to repay obligations, and to ensure that investors are adequately compensated for the risk assumed.
The portfolio is composed of about 500 separate positions, in part to ensure that a potential default or price decline of any one issuer has a minimal impact upon the net asset value of the portfolio.
In adjusting position sizes within the portfolio, we may take into account the credit quality of the issuer (with higher-quality credits typically being afforded larger position sizes), the extent to which each issue contributes to the duration of the portfolio, and prospectus limitations.