Here at PTAM, we’ve had a general affinity towards Municipal bonds across our product offerings historically. There are two evergreen reasons why:
1) Municipal bonds may offer less credit risk. An A-rated Municipal bond has had a lower default rate than a AAA-rated Corporate bond historically.1
2) The Municipal bond market has a differentiated buyer base compared to other fixed income sectors. 48% of Municipal bond buyers are represented by individual, or “mom and pop” investors!2 This can lead to pricing inefficiencies, as retail participants often struggle to accurately value bonds. We own both Taxable and Tax-Exempt Municipal bonds, even in our taxable funds, where there is no tax benefit received from the Tax-Exempt Municipal bonds. (For what it’s worth, we do offer a Municipal bond fund, PTIMX, where the tax benefit would pass through to shareholders in distributions). But one of the most common questions we receive is why would we own a Tax-Exempt Municipal bond in a taxable portfolio?
As is the PTAM way, we think using an example is the best way to illustrate why. In May 2022, we bought a Tax-Exempt Municipal bond for PTIAX. It was a AA-rated, 3% coupon bond that had witnessed significant price depreciation before we bought it at a price of $83.60. We knew its discounted price enhanced the bond’s go-forward total return profile, or its “shape”. The bond had also experienced spread widening prior to our purchase, spreading about +108 basis points (bps) to the Municipal Market Data (MMD) AAA benchmark curve at the time we bought it. We believed the bond had the potential to provide attractive total returns for the portfolio, through a higher starting yield and a wider spread, even without the benefit of its tax-exemption flowing through to our clients in PTIAX.
How has it performed since? And, perhaps more importantly, were we happy with our decision to invest in the Tax-Exempt Municipal bond, instead of something more traditional, like a U.S. Treasury or an Investment-Grade (IG) Corporate?
We compared our 2041 Tax-Exempt Municipal bond to a 2041 U.S. Treasury and a 2041, A-rated Home Depot bond, which we believe is a fair credit to represent a generic IG Corporate over the holding period from 5/13/2022–4/29/2026.
The 2041 U.S Treasury actually lost money, with a -2.84% holding period return (- 0.72% annualized return).
The 2041 Home Depot had a much better outcome than the U.S. Treasury, with a 13.46% holding period return (3.17% annualized return).
However, our 2041 Tax-Exempt Municipal bond provided the best outcome, a 19.42% holding period return (4.47% annualized return). So, even without a tax-free distribution in PTIAX, our Tax-Exempt Municipal bond was the superior investment decision and outcome of the three bonds, providing nearly 6% of greater holding period returns compared to the IG Corporate and over 20% of greater returns when compared to the U.S. Treasury. Keep in mind, the Tax-Exempt Municipal bond experienced a 4.47% annualized return even though rates rose 158 bps during that time frame!
The sector allocations amongst our portfolios don’t look different simply to look different. We go where our bottom-up, math-based methodology, Shape Management, identifies the best total return opportunity, even if it looks different than our peers. We buy Tax-Exempt Municipal bonds in taxable products when they offer the potential to outperform taxable bonds by hundreds of basis points, even if they won’t benefit from a tax-exempt distribution.
It’s worth noting that the relative value landscape looks different today than it did in 2022. The 2041 Tax-Exempt Municipal bond saw its spread tighten, enhancing its total return, but detracting from its go-forward potential. We have since sold the bond.3 On the other hand, long U.S. Treasuries, which we did not own back in early 2022, are at recent historically high yields and offer more yield curve roll potential than in early 2022. Perhaps most important, spreads today are tighter across many fixed income sectors, making U.S. Treasuries look cheaper on a relative basis, particularly at the long-end of the curve. The fixed income landscape is always changing, but we believe Shape Management will lead us to the best available investment opportunities today, no matter how different it looks from our peers.
Returns quoted represent past performance which does not guarantee future results.
Total Returns (as of 03/31/2026)
1- PTIAX Since Inception returns through 8/31/2010-3/31/2026. PTIMX Since Inception returns through 6/30/2011-3/31/2026.
PTAM Top 10 Holdings(as of 03/31/2026)
Returns quoted represent past performance which does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Current performance may be lower or higher than the performance quoted. Returns current to the most recent month-end may be obtained at www.test.ptam.com or by calling (866) 792-9606. Returns over one year are annualized. PTIAX Expense Ratio: 0.75%; 30-Day SEC Yield: 4.34%. PTIMX Expense Ratio: 0.48%; 30-Day SEC Yield: 3.79%.
1- Moody’s US municipal bond default and recovery rates: 1970-2024. Data 8/4/2025.
2- SIFMA. Data as of Q4 2025.
3- The entire position was sold on 4/29/2026.
Sources: PTAM, Bloomberg, MMD AAA, Moody’s and SIFMA.
Taylor acts as PTAM’s Client Portfolio Manager, serving as a liaison between investments, marketing, and sales. She is responsible for investment strategy updates and portfolio communications for all PTAM’s products. Taylor additionally leads production of various portfolio and market commentary as well as dedicated strategy content. Taylor received a Bachelor of Arts from the Princeton School of Public and International Affairs from Princeton University. She is also a CFA® charter holder.
GLOSSARY
NAV (Net Asset Value) return measures the performance of a fund based on the changing value of its underlying assets. Price return measures changes in an ETF or stock’s trading price on an exchange. The Bloomberg US Aggregate 1-3 Year Index is a subset of the Bloomberg US Aggregate Index, and tracks investment grade, fixed-rate bonds, including treasuries, government related, corporate and securitized issues. It only includes securities with a maturity between one and up to, but not including three years. Bloomberg US Aggregate Bond Index measures the performance of the investment grade universe of bonds issued in the United States. The index includes institutionally traded U.S. Treasury, government-sponsored, mortgage, and corporate securities. It is not possible to invest in an index.
Yield Curve refers to the U.S. Treasury yield curve rates.
RISKS AND OTHER IMPORTANT CONSIDERATIONS
Investing involves risk; principal loss is possible. Investments in debt securities typically decrease in value when interestrates rise. This risk is usually greater for longer-term debt securities. Investments in lower rated and non-rated securities present a greater risk of loss to principaland interest than higher-rated securities. Investments in asset-backed and mortgage-backed securities include risks that investors should be aware of such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. For a complete list of disclosures, please visit www.test.ptam.com.
When selecting a bond to invest in, most investors rely on what we refer to as “traditional fixed income metrics,” which are generally a combination of (1) taking a stance on whether interest rates will increase or decrease, (2) yield and (3) duration. Nearly 30 years ago, PTAM’s founders recognized the potential shortcomings in traditional bond metrics, and developed Shape Management, a math-based investment process that addresses each ofthese shortcomings by analyzing the risk return profile of a bond’s future cash flows. Shape Management is a mathematical calculation that analyzesthe risk return profile of a bond’sor group of bonds’ future cash flows. By using Shape Management, PTAM creates projections of the performance of specific bonds or grouping of bonds. These projections are not the actual performance of any bond or product. As a result, Shape Management performance in this email were not actually achieved by any PTAM investment or product. The criteria and assumptions underlying the projected performance may prove to beincorrect. Prospective investors should not rely solely on such projected performance and should conduct a thorough independent analysis of the investment opportunity. The graphs included throughout this email are provided for illustrative and educational purposes only. Projected performance results mayhave many inherent limitations. No representation is being made that an investment will, or is likely to, achieve profits or losses similar tothose shown. In fact, there are frequently significant differences between projected performance results and actual results subsequently achieved. Although projected performance may be useful to consider when making an investment decision. Investment decisions based on Shape Management information may not be profitable. All projected performance is shown as net performance, which includes management fees, reinvestment of interest payments, principal payments, and capital gains.
The information included is not an offer, recommendation or professional advice. Certain information contained herein has been obtained from third party sources and such information has not been independently verified by PT Asset Management, LLC. No representation, warranty, orundertaking, expressed or implied, is given to the accuracy or completeness of such information by PT Asset Management, LLC or any other person. While such sources are believed to be reliable, PT Asset Management, LLC does not assume any responsibility for the accuracy or completeness of such information. PT Asset Management, LLC does not undertake any obligation to update the information contained herein as of any future date. This email is confidential, is intended only for the person to whom it has been directly provided and under no circumstances may a copy be shown, copied, transmitted or otherwise be given to any person other than the authorized recipient without the prior written consent of PT Asset Management, LLC. Any indices and other financial benchmarks shown are provided for illustrative purposes only, are unmanaged, reflect reinvestment of income and dividends and do not reflect the impact of advisory fees. Investors cannot invest directly in an index. Comparisons to indexes have limitations because indexes have volatility and other material characteristicsthat may differ from a particular hedge fund. For example, a hedge fund may typically hold substantially fewer securities than are contained in an index. Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use offorward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future.
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