Thornburg Intermediate Municipal Fund is a broadly diversified, laddered portfolio of intermediate-term investment-grade municipal bonds from throughout the country. Maturities range from one to 20 years, with the fund’s average duration standing around four to six years. Actively laddering portfolios helps mitigate the risks of bond investing and can generate attractive returns over time.
“This fund focuses on identifying attractive value in the investment-grade municipal bond market. We apply a strict discipline of fundamental credit research and strive to produce an attractive dividend while avoiding the long maturities that are most vulnerable to interest-rate swings.”
– David Ashley
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 fund’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 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 over 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.
It’s important for investors to match their investment horizon to the duration of the strategy in which they’re invested, and to diversify tax-exempt assets across the yield curve.
This is why Thornburg offers a range of strategies—from Low Duration Municipal Fund on the short end to Strategic Municipal Income Fund on the long end—to provide a home to match every time horizon.