For the past decade, the size of the municipal bond market has remained relatively stable, while other major bond market sectors have grown rapidly (see Exhibit I). Ongoing Federal fiscal budget deficits have prompted a dramatic increase in Treasury borrowing. Corporations have ramped up their bond issuance as well to fund stock buybacks, avoid the repatriation of overseas profits, and finance mergers and acquisitions, among other reasons. In comparison, the muni market has been left in the dust. Following the Global Financial Crisis (GFC), many states and local governments operated in a more fiscally conservative manner to help their finances recover (a good thing!). These government entities have also faced the burden of pensions and related benefit obligations consuming a growing portion of their resources, which constrained the funds available for new projects. In 2017, the Tax Cuts and Jobs Act introduced a major new limiting factor – the prohibition of tax-exempt advanced refundings.
Issuers with credit ratings of AA or better are considered to be of high credit quality, with little risk of issuer failure. Issuers with credit ratings of BBB or better are considered to be of good credit quality, with adequate capacity to meet financial commitments. Issuers with credit ratings below BBB are considered speculative in nature and are vulnerable to the possibility of issuer failure or business interruption.
Opinions, forecasts, and discussions about investment strategies represent the author's views as of the date of this commentary and are subject to change without notice. References to specific securities, asset classes, and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations.
Diversification does not eliminate the risk of experiencing investment losses.
RISKS
Investors in the Fund should be able to withstand short-term fluctuations in the fixed income markets in return for potentially higher returns over the long term. The value of portfolios changes every day and can be affected by changes in interest rates, general market conditions and other political, social and economic developments.
Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, maturity, call and inflation risk; investments may be worth more or less than the original cost when redeemed.
Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax.
As the Fund's exposure in any one municipal revenue sector backed by revenues from similar types of projects increases, the Fund will also become more sensitive to adverse economic, business or political developments relevant to these projects.
The Fund also invests in derivative instruments, investments whose values depend on the performance of the underlying security, assets, interest rate, index or currency and entail potentially higher volatility and risk of loss compared to traditional stock or bond investments.
Asset allocation decisions, particularly large redemptions, made by an investment adviser whose discretionary clients make up a large percentage of the Fund's shareholders may adversely impact remaining Fund shareholders.
For more complete information, visit www.bbhfunds.com for a current Fund prospectus. You should consider the fund's investment objectives, risks, charges and expenses carefully before you invest. Information about these and other important subjects is in the fund's prospectus, which you should read carefully before investing.
Shares of the Fund are distributed by ALPS Distributors, Inc. and is located at 1290 Broadway, Suite 1000, Denver, CO 80203.
Brown Brothers Harriman & Co. ("BBH"), a New York limited partnership, was founded in 1818 and provides investment advice to registered mutual funds through a separately identifiable department (the "SID"). The SID is registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940.
Not FDIC Insured No Bank Guarantee May Lose Money
IM-12627-2023-04-06 BBH003699 Exp. Date 04/30/2025
