The Municipal Bond Market Has Changed
Has your portfolio adapted?
Investing in municipal bonds has become more complicated,
as risks that emerged during the financial crisis continue today.
Understanding these changes may help investors evaluate the
need for actively managed municipal bond solutions.
Because while the markets change,
your investment goals don’t.
Get started in three steps:
1
Understand the issues
2
Identify portfolio needs
The need for independent, fundamental research has intensified as municipal finances have become
more complex. Increasing investor demand and low net new supply have further complicated
participation in the market. Several credit and market factors are affecting municipal dynamics.
Municipal Market Changes Underscore the Need for Research
Events in recent years have stressed the financial health of cities, states and other borrowing entities.
These structural changes have led to volatility in credit spreads, which is the yield premium for
purchasing lower-quality bonds.
The Result: Opportunity Exists for Those Who Know How to Assess Risk
Credit Spreads vs. AAA-Rated Municipal Bonds (January 1, 2001 – December 31, 2015)
Chart does not represent the yield or past performance of any Nuveen product.
Yield Spread (%)
BBB
A
AA
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Bond Insurers’ Ratings Cut Lehman BrothersBankruptcy MunicipalBond Market Collapse Predicted Corporate
Accounting Scandals
Data source: S&P/Investortools, from 1/1/01 to 12/31/15. Past performance is no guarantee of future results. Chart shows yield difference between the AAA-rated Municipal Bond Yield Curve and the AA-, A- and BBB-rated Municipal Bond Yield Curves.
Rating Scales Have Changed
The major ratings agencies shifted to a global rating scale that “lifted” credit ratings of municipal
bond issuers, especially those with lower ratings. Now many municipal bonds boast A credit ratings,
but may still carry the risks of securities rated Baa.
The Global Scale Has Blurred the Distinction Between Credit Profiles
Rating Changes of General Obligation and Essential Service Revenue Bonds
Moody’s
Fitch
Rating Category
Notches of Lift
Rating Category
Notches of Lift
Aaa 0 AAA 0
Aa 0 or 1 AA 1
A 2 A 1 or 2
Baa 2 or 3 BBB 2
Below Investment Grade 0 Below Investment Grade Case by Case
Source: Recalibration of Moody’s U.S. Municipal Ratings to its Global Rating Scale, Moody’s Investors Service, March 2010; Recalibration of U.S. Public Finance Ratings, Fitch Ratings, March 25, 2010.
Understand the Issues
1
Why is this
important?
Bonds with Similar Ratings Are Not Created Equal
Because the rating scales have changed, bonds with the same credit rating may show a wide yield
range. For example, the yields of A-rated bonds with 2-year maturities ranged from 0.2% to 5.7%,
making it difficult to assess each bond. Investment managers do extensive research to determine
if a higher yielding bond is compensating an investor adequately for the risk.
Yields Have Varied Greatly Among Comparably Rated Bonds
Range of Yields for A-Rated Bonds in the S&P Municipal Bond Index as of December 31, 2015
C 0% 1% 2% 3% 4% 5% 6% 30-Year 20-Year 10-Year 5-Year 2-Year Lowest Average Highest Yield (%) Maturity Yield Range 5.7% 1.4% 0.2% 5.4% 1.8% 0.2% 5.1% 2.5% 0.2% 5.2% 3.0% 0.8% 4.4% 3.2% 1.2%
hart does not represent the yield or past performance of any Nuveen product.
Data source: S&P/Investortools, as of 12/31/15. Past performance is no guarantee of future results. Yield data represents the yield to worst of all bonds in the index at each maturity level. Any reference to municipal credit ratings refers to the highest rating given by one of the following national rating agencies: S&P, Moody’s or Fitch. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Yield to worst is the lowest yield generated given the potential stated calls before maturity.
Individual Investors Are at a Pricing Disadvantage
The inefficient and negotiated municipal market can make it difficult for retail investors to obtain
the best prices. Buying or selling individual municipal bonds is generally more expensive for
individual investors who buy smaller blocks of bonds than institutional investors that buy in bulk.
With Income As a Priority, Pricing Matters
Median Trading Spreads by Trade Size in Fixed Coupon Municipal Securities (January 1, 2015 – December 31, 2015)
Median Trading Spreads
Trade Size All Trades $1M+ $100K - $1M $25K - $100K $25K or less 0.68% 0.27% 0.48% 0.91% 1.19%
Lowest Trading Costs:
Large Institutional Investors
Data source: Municipal Securities Rulemaking Board, Nuveen Asset Management Research, based on the most recent data available. Past performance is no guarantee of future results. This illustration provides estimated monthly price spreads as a percentage of the principal amount traded for fixed coupon municipal securities based on the size of the trade. Other methods may produce different results and the results for the individual portfolios and for different periods may vary. Institutional trade execution applies primarily to municipal bond trading as part of ongoing account management and generally does not include sales of legacy securities contributed to new or existing accounts
Understand the Issues
In the current environment, it may be harder for investors to research, purchase
and hold individual municipal bonds. Your financial advisor can work with
Nuveen Asset Management to analyze your existing fixed income holdings.
The confidential, complimentary, no-obligation Municipal Bond Portfolio Review provides a basis
for discussing portfolio strengths and potential challenges. The Portfolio Transition Analysis is an
enhanced feature that outlines which bonds may be held, may require further review or could be
sold when converting a portfolio to a separately managed account.
2
Identify Portfolio Needs
A Personalized Municipal Bond Portfolio Review Offers Clarity and Direction*
Portfolio Transition Analysis
CUSIP Par$000s MktValue % DescriptionInsurer AMT Mdy/SP Maturity Mod Dur ConvexityMarket MktPrice Mkt Yield Cpn Call Date Call Price Par Call
13062R5U8 50 6.84 California St
Prerefunded N NR/NR 03/01/2016 0.09 0.000 100.454 0.19 5.000 79575DG53 50 6.98 Salt River Proj Ariz Agric Imp N Aa1/AA 12/01/2016 0.83 0.005 103.903 0.37 5.000 150461UP4 50 7.07 Cedar Park Tex
Prerefunded N Aa2/AA 02/15/2017 1.02 0.008 104.002 0.55 4.375 576000FF5 50 7.24 Massachusetts St Sch Bldg Auth
Prerefunded N Aa2/AA+ 08/15/2017 1.48 0.015 106.325 0.64 4.750 037114GB5 50 6.79 Antioch Calif Uni Sch Dist Ctf
Insurer: NPFG N A3/AA- 09/01/2017 0.08 0.000 100.221 1.32 4.000 02/28/2016 36005LBH4 50 7.43 Fulton Cnty GA Facs Corp Ctfs N Aa3/AA- 11/01/2018 2.58 0.042 110.172 1.24 5.000
341507F89 50 7.80 Florida St Brd Ed Lottery Rev N A1/AAA 07/01/2020 4.03 0.095 116.479 1.17 5.000 088023JJ6 50 8.27 Beverly Hills Calif Uni Sch Di N Aaa/AA+ 08/01/2021 4.83 0.144 121.465 0.99 5.000
74514LA72 50 4.19 Puerto Rico Comwlth N Caa3/CC 07/01/2024 6.01 0.230 62.385 12.63 5.250 07/01/2022 4425652R7 50 8.15 Howard Cnty MD N Aaa/AAA 08/15/2024 4.86 0.145 119.943 1.27 5.000 08/15/2021 977092WF8 50 8.21 Wisconsin St Clean Wtr Rev N Aa1/AA+ 06/01/2025 6.27 0.233 122.281 1.75 5.000 06/01/2023 167485KR1 50 6.69 Chicago Ill
Insurer: AMBAC N Ba1/BBB+ 01/01/2029 0.08 -4.354 100.003 4.35 4.400 02/28/2016 810802CR7 50 6.79 Scranton PA Pkg Auth Pkg Rev
Insurer: NPFG N A3/AA- 09/15/2033 0.13 -4.640 99.998 4.93 5.000 02/28/2016 717883GR7 50 7.55 Philadelphia PA Sch Dist N Ba2/NR 09/01/2038 2.38 0.036 110.678 1.77 6.000 09/01/2018 Total Par: 700 Total Market Value: $749,417 Averages: 01/09/2023 2.51 -0.54 105.594 2.01 4.913
19 For use with financial advisors and clients in consultation with their financial advisors in one-on-one presentations Please see the end of the proposal for full disclosure.
This analysis provides a preliminary non-binding indication of how Nuveen Asset Management would expect to address holdings contributed to a new account in principle, for informational purposes only. This analysis does not reflect, establish or evidence an advisory or fiduciary relationship between Nuveen Asset Management and the prospect; is not based on the financial status, investment objectives, tax situation, or needs of a specific client; and is not and should not be relied upon as investment advice that should be independently relied upon by the prospect or their financial advisor. An advisory or fiduciary relationship between Nuveen Asset Management and the prospect requires the execution of an investment advisory agreement. Nuveen Asset Management reserves the right to take actions that differ from the analysis presented above based on its then-current investment advice, market conditions, and client-specific information.
Hold Subject to Normal Turnover Hold Until Maturity Subject to Further Review Initial Sell
How many bonds do you own —
and what did you pay for them?
We purchase large, institutional blocks of bonds and allocate them to individual accounts. You can potentially benefit from economies of scale.
Are you subject to the
Alternative Minimum Tax?
Discuss with your tax advisor whether a portfolio that omits AMT bonds would better suit your tax needs.
Do you know what you own?
The revised credit rating scale lifted BBB bonds into higher-rated categories. We perform continuous, in-depth research to understand the credit risk of each underlying security.
Are you capitalizing on higher
coupon/premium bonds?
For separately managed accounts, we focus primarily on premium bonds that may return cash flow faster and may be less sensitive to changes in interest rates.
To get started, ask your financial advisor about a Municipal Bond Portfolio Review.
* Source: Nuveen Asset Management. For illustrative purposes only. The Portfolio Transition Analysis provides a preliminary non-binding indication of how Nuveen Asset Management would expect to address holdings contributed to a new account in principal, for informational purposes only. See risk and disclosure section on page 7 for more information.
As you review your portfolio with your financial advisor to discuss investment
goals and asset allocations, consider actively managed municipal options from
the Nuveen Asset Management investment team.
Evaluate Solutions
3
Separately
Managed Account
Mutual Fund
Closed-End Fund
Individually managed portfolios tailored to the account holder.
Investors own the securities.
Daily pricing and liquidity with lower investment minimums. Investors own shares of the fund.
Exchange-traded with intra-day pricing determined by the market. Investors own shares of the fund.
Short Term
Limited Maturity
Intermediate Term
Long Term
Short Duration High Yield
High Yield
Total Return
Inflation Protected
AMT-Free
State Specific
State Preference
Laddered Portfolios
Tailored Portfolios
There is no guarantee that any of the strategies will achieve their stated objectives. There are risks inherent in any investment and these risks should be carefully considered before investing. Not all products are available at all firms. Please check with your firm for availability.
Separately Managed Accounts, Open-End Mutual Funds and Closed-End Funds are different types of investment vehicles with different expense structures and different inflows/outflows and distribution requirements. Income may be subject to state and local income taxes. Capital gains, if any, will be subject to capital gains tax.
For more information, contact your financial advisor and visit nuveen.com.
How to Get Started
Leading the Way in Municipal Bonds
GLOSSARY
The Alternative Minimum Tax (AMT) was originally enacted to ensure that all taxpayers pay their fair share of the costs of government. Determining if a taxpayer is subject to AMT requires tax liability to be calculated twice: first using the regular tax rules and then a second time using the AMT rules. Only if the AMT calculation produces a higher tax liability than the regular tax rules, is a taxpayer subject to the Alternative Minimum Tax. Dispersion describes the size of the range of values expected for a particular variable. Yield refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.
ADDITIONAL DISCLOSURES
The comments and statements made are based solely upon the opinions of Nuveen Asset Management and the data available at the time of publication, which may change without notice. There is no assurance that any predicted results will actually occur. This brochure is provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities and should not be considered investment advice of any kind. Certain information was obtained from third-party sources, which we believe to be reliable, but is not guaranteed. Nuveen Asset Management seeks to expeditiously and efficiently effect sales of legacy securities contributed to new or existing accounts or in connection with termination and liquidation instructions, generally by directing the execution of sale to the relevant broker-dealer/custodian designated by the client’s managed account program, subject to program limitations. Primarily due to the time constraints and lot sizes applicable to these transactions, and because the full range of trading techniques is generally not available (including aggregation), the prices received in these transactions may be less favorable than the prices that could be attained for sales of securities selected by Nuveen as part of ongoing management. Clients always reserve the right to fund accounts with cash as opposed to legacy securities and to keep any securities in their accounts if terminating Nuveen’s services. Nuveen Asset Management Research conducted a study of daily municipal bond trades to calculate estimated spreads for fixed coupon municipal securities. Each file was sorted by CUSIP to find multiple trades on a given day. For each CUSIP that appeared multiple times in one day, the algorithm searched to see if both a sale to a customer and a purchase from a customer occurred on that day. If there were multiple sales and purchases on a given day, the average was taken for each category. The estimated spreads were calculated for each CUSIP by subtracting the average purchase price from the average sale price of the CUSIP. Transactions between dealers were excluded. Spreads for some security-days appeared too large or small to be anything but data errors, so we sorted security days by the size of the spread and deleted observations with the largest and smallest 0.5% of spreads. Institutional size trades were separated from the retail trades and the median spread was taken by category ($25K or Less, $25K - $100K, $100k - $1M, and Over $1M). For example, the $25,000 or less dataset contains all instances where there was at least one customer purchase of principal amount of $25,000 or less and at least one customer sale of principal amount of $25,000 or less on the same day in the same security. Negative spreads (average purchase price greater than the average sale price from the customer) and zero spreads were excluded from the calculation.
PORTFOLIO REVIEW REPORT/PORTFOLIO TRANSITION ANALYSIS
The report summarizes certain information regarding a prospective client’s pre-existing holdings based on data provided by the prospect and/or its financial advisor and third party sources. The holdings and characteristics of an actual account managed by Nuveen Asset Management may vary materially from the prospect’s current holdings. This report is for discussion purposes only and is not a recommendation to buy or sell any securities or a particular investment strategy.
The Portfolio Transition Analysis does not reflect, establish or evidence an advisory or fiduciary relationship between Nuveen Asset Management and the prospect; is not based on the financial status, investment objectives, tax situation, or needs of a specific client; and is not and should not be relied upon as investment advice that should be independently relied upon by the prospect or their financial advisor. An advisory or fiduciary relationship between Nuveen Asset Management and the prospect requires the execution of an investment advisory agreement. Nuveen Asset Management reserves the right to take actions that differ from the analysis based on its then-current investment advice, market conditions, and client-specific information.
The bond prices listed in this review are based on institutional evaluations and are not actual bids on the existing bonds. Institutional trade execution applies primarily to municipal bond trading as part of ongoing account management and generally does not include sales of legacy securities contributed to new or existing accounts or in connection with termination and liquidation instructions. When liquidated, bond blocks may receive less than the prices listed. Bonds are also subject to liquidity conditions and market fluctuations resulting in prices that may adjust accordingly.
A WORD ON RISK
Investing in municipal bonds and a municipal bond investment vehicle involves risks such
as interest rate risk, credit risk and market risk, including the possible loss of principal. The
value of the portfolio will fluctuate based on the value of the underlying securities.
In addition, the callability of bonds may increase interest rate risk exposure in the
Laddered portfolios. Upon call, a client may be confronted with a less favorable interest
rate environment than the one that existed when the original bond was purchased.
Investors should contact a tax advisor regarding the suitability of tax-exempt
investments in their portfolio. If sold prior to maturity, municipal securities are
subject to gain/losses based on the level of interest rates, market conditions and the
credit quality of the issuer. Income may be subject to the alternative minimum tax
(AMT) and/or state and local taxes, based on the state of residence. Nuveen Asset
Management is not a tax advisor. Consult your professional advisors before making
any tax or investment decisions. This information should not replace a client’s
consultation with a professional advisor regarding their tax situation.
Before investing, carefully consider fund investment objectives, risks, charges
and expenses. For this and other information that should be read carefully,
please request a prospectus or summary prospectus from your financial advisor
or Nuveen Investments at 800.257.8787 or visit nuveen.com.
The Funds feature portfolio management by Nuveen Asset Management, a registered investment adviser and an affiliate of Nuveen Securities, LLC. Funds distributed by Nuveen Securities, LLC, a subsidiary of Nuveen Investments, Inc.
Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen Investments, Inc.
Nuveen Investments Advisers Inc. (“NIA”), a registered investment adviser, provides Managed Account marketing services for its affiliates that are registered investment advisers, including Nuveen Asset Management, LLC. All such affiliates are also affiliates of Nuveen Investments, Inc.
Since 1898,
Nuveen Investments
has been a
pioneer in municipal bonds, helping to build
lasting value for investors
Nuveen Asset Management utilizes
deep credit
research
to deliver global multi-asset class solutions
credit research analysts
23
years of history
and experience
118
As
one of the industry’s largest credit research teams
,
23 analysts
averaging 18 years of experience
are
dedicated to municipal investing
This municipal bond heritage is reflected in the
way
Nuveen Asset Management
manages
portfolios today
1Manage approximately 3%
of overall
municipal bond market assets
33
%
in municipal fixed
income AUM
2$
10
8
.
2
b
1 Nuveen Investments, Inc. traces its history back to 1898. Nuveen’s asset management business was established in 1989. 2 Nuveen Asset Management municipal fixed income assets
under management as of 12/31/15.
For more information, contact your financial advisor and visit nuveen.com.
Nuveen Asset Management, LLC, Symphony Asset Management LLC, NWQ Investment Management Company, LLC, Santa Barbara Asset Management, LLC, Tradewinds Global Investors, LLC, Winslow Capital Management, LLC, and Gresham Investment Management LLC are registered investment advisers and affiliates of Nuveen Securities, LLC.
G D M U N I-02 16 D 14 555 -INV-Y-03/17
