Thornburg Limited Term Municipal Fund is a laddered portfolio of investment-grade municipal bonds from throughout the country, with maturities of one to 10 years, and with an average duration around 3.5 years. Actively laddering portfolios helps mitigate the risks of bond investing and can generate attractive returns over time.
“This is Thornburg’s oldest mutual fund and the largest of the firm’s bond funds. It has an active, 10-year laddered structure and we frequently freshen our targets for portfolio credit quality, duration, and exposure along the yield curve. The goal is to maximize income subject to maintaining a relatively stable principal value.”
– 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 the 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 portfolio 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 almost 2,000 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.