Tax Exempt Investing

  • Tax Exempt Income

    • Investors who seek income exempt from federal income, federal alternative minimum, and state income taxes, may find that municipal bonds suit their needs. Potential options include purchasing a single municipal bond, often held to maturity, or investing in a municipal bond mutual fund. Not every investor will benefit from the tax-exemption, however. Those who invest primarily through a tax-advantaged account, such as an IRA, 401(k), or other tax-deferred retirement account, will not realize the tax benefits of municipal bonds but may find them otherwise suitable as a relatively low-risk income stream. Held in taxable accounts, municipal securities have clear advantages, particularly for investors in higher tax brackets. It is relatively straightforward to determine the effect of tax-exempt status on returns by using the following formula to compute an investment's "tax-equivalent yield":

      Tax Equivalent Yield = Tax-Free Yield / (1 – investor's federal tax bracket %)

      This formula helps determine whether the yield on a tax-free investment is higher than the after-tax yield of a non-exempt investment. To illustrate, given tax brackets of 25%, 28%, 35% and 39.6%, and a hypothetical tax-free yield of 3.00%, a taxable investment would need to provide an even higher yield in order to deliver a higher actual return.

      Tax-Free Yield Tax Bracket Tax-Equivalent Yield
      3.00% 25% 4.00%
      3.00% 28% 4.17%
      3.00% 35% 4.62%
      3.00% 39.6% 5.00%

      A higher tax bracket lowers the denominator of the equation, producing a higher tax equivalent yield. Conversely, investors in lower tax brackets may find better yields in taxable alternatives.

      Buffington Mohr McNeal’s municipal fixed income process captures a significant portion of available yield with substantially less price volatility than longer term bonds.

      We are an experienced team of investment professionals providing superior client service.

  • Investment Philosophy

    • An intermediate duration strategy offers the most attractive risk/reward trade-off over the long term.

      Yield advantaged sectors enhance portfolio returns in both short and long-term horizons.

      Technical factors are considered in investment strategy.

      Extensive portfolio management experience and independent credit research ensure high quality portfolio standards.

  • Emphasis on Credit Research

    • Credit variables can significantly impact investment returns

      Buffington Mohr McNeal relies upon internal credit analysis in addition to Wall Street analysts and rating agency reports

      Portfolio managers and independent credit analysts provide ongoing credit research and monitoring to assure high quality and marketability.

  • Interest Rates and The Business Cycle

    • We analyze the economic environment to determine the current position within the business cycle.

      Duration and yield curve strategies are driven by long-term business cycle trends, and hence remain in place for extended periods.


  • Specific Issue Selection 

    • Impact of individual issues is quantified through this modeling.

      Misevaluation opportunities are captured while maintaining portfolio strategy.

      Opportunistic trading between Municipal and U.S. Government Sectors to enhance total return.

      Ensure consistency of strategy implementation.

      Alter portfolios based on business cycle movement and strategy modifications.

  • Summary

    • Our philosophy and process of municipal bond management is disciplined and time-proven.

      We place a premium on independent research, talented investment professionals and structuring an environment conducive to success.