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Navigate Rough Waters
Because bonds come in a variety of maturities, yields, and risk, it is not obvious how to go about creating and managing an investment portfolio.
AAM will review client statements and provide you with suggestions based on your client’s specific financial situation, investment objectives, and risk tolerance.
advisors asset management
AAM provides financial professionals with customized fixed income and equity portfolios actively managed by highly specialized, experienced investment professionals that can help meet your ongoing and varied investment needs.
Strategies range from conservatively positioned portfolios of income-oriented tax-exempt municipal bonds to more aggressive equity portfolios positioned for growth.
EXPERIENCE
CORE TAX-EXEMPT STRATEGY
Regardless of the environment, AAM’s Core Tax-Exempt Strategy seeks:
©2024 Advisors Asset Management. Advisors Asset Management, Inc. (AAM) is an SEC-registered investment advisor and member FINRA/SIPC. Registration does not imply a certain level of skill or training.
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AAM's Value Proposition
+
45 years of
EXPERIENCE
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Dedicated to providing COMPLETE, TAILORED PORTFOLIO SOLUTIONS
with the ability to review
and potentially accept
in-kind current fixed
income holdings
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Leverage our EXPERTISE
to create and manage portfolios focused on income generation, particularly
in volatile markets
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Disciplined.
Income-focused.
Research-based.
Focused on finding value while managing risk.
PROVIDING A STRONG FOUNDATION FOR PORTFOLIOS
Tax-Exempt Income
Capital Preservation
Features of a
Bond Ladder
Oversight
What is a bond ladder?
Investment-grade municipal fixed income strategy seeks to provide tax-exempt income with a secondary emphasis on capital preservation
TAX-EXEMPT INCOME
Features of a Bond Ladder
Higher Average Yields
Generally, the longer a bond’s maturity, the higher the yield. A bond ladder combines the higher yields of longer-term bonds with the liquidity of shorter-term bonds. Staggering bond maturities allows investors to earn potentially higher yields than would be possible with short-term investments alone and money market accounts.
Predictable Cash Flows
A bond ladder can be constructed to provide periodic interest payments which can help investors match cash flows with cash expenditure needs. This can be especially beneficial for investors at or nearing retirement.
Manage Interest Rate Risk
By having bonds come due over nearly equal periods of time, you can help smooth out the effects interest rates have on portfolio valuations. How sensitive a portfolio’s valuation is to change in interest rates is known as a portfolio’s duration. A bond ladder can be tailored to target a duration which best fits the investor’s objectives and risk tolerance. Portfolio managers generally seek to reduce a portfolio’s duration to combat the effects rising interest rates can have on a bond portfolio and seek to increase duration to monetize volatility in a declining interest rate environment.
Enhanced Bond Ladder
Mitigate Reinvestment Risk
Reinvestment risk is the risk that when a bond matures, the investor may not be able to reinvest their proceeds in a comparable bond at the same rate. By committing to a bond ladder strategy, investors can lessen the impact reinvestment risk can have on their portfolio. If interest rates rise, your maturing bonds take advantage of improved rates. If interest rates fall, your bond ladder portfolio holdings have the potential to produce more income than could be achieved at the current levels, resulting in a more consistent yield.
Maintain a Degree of Flexibility
With a bond ladder, you’ll have one or more bonds maturing on a regular basis. You can choose to reinvest your principal in another bond or redirect the proceeds for another purpose based on income needs and current investment objectives.
Diversification
A bond ladder strategy allows for a constructive level of diversification. In addition to diversifying your principal in bonds with different maturities, you can also build your bond ladder with different issuers and credit ratings. By diversifying a portfolio’s weighted average credit quality, investors can potentially improve overall yield without incurring unacceptable levels of risk.
Higher Average Yields
Predicatable Cash Flows
Manage Interest Rate Risk
Mitigate Reinvestment Risk
Maintain a Degree of
Higher Average Yields
Generally, the longer a bond’s maturity, the higher the yield. A bond ladder combines the higher yields of longer-term bonds with the liquidity of shorter-term bonds. Staggering bond maturities allows investors to earn potentially higher yields than would be possible with short-term investments alone and money market accounts.
Predictable Cash Flows
A bond ladder can be constructed to provide periodic interest payments which can help investors match cash flows with cash expenditure needs. This can be especially beneficial for investors at or nearing retirement.
Manage Interest Rate Risk
By having bonds come due over nearly equal periods of time, you can help smooth out the effects interest rates have on portfolio valuations. How sensitive a portfolio’s valuation is to change in interest rates is known as a portfolio’s duration. A bond ladder can be tailored to target a duration which best fits the investor’s objectives and risk tolerance. Portfolio managers generally seek to reduce a portfolio’s duration to combat the effects rising interest rates can have on a bond portfolio and seek to increase duration to monetize volatility in a declining interest rate environment.
Mitigate Reinvestment Risk
Reinvestment risk is the risk that when a bond matures, the investor may not be able to reinvest their proceeds in a comparable bond at the same rate. By committing to a bond ladder strategy, investors can lessen the impact reinvestment risk can have on their portfolio. If interest rates rise, your maturing bonds take advantage of improved rates. If interest rates fall, your bond ladder portfolio holdings have the potential to produce more income than could be achieved at the current levels, resulting in a more consistent yield.
Maintain a Degree of Flexibility
With a bond ladder, you’ll have one or more bonds maturing on a regular basis. You can choose to reinvest your principal in another bond or redirect the proceeds for another purpose based on income needs and current investment objectives.
Diversification
A bond ladder strategy allows for a constructive level of diversification. In addition to diversifying your principal in bonds with different maturities, you can also build your bond ladder with different issuers and credit ratings. By diversifying a portfolio’s weighted average credit quality, investors can potentially improve overall yield without incurring unacceptable levels of risk.
How It Works
How It Works
Assuming an initial investment of $100,000, an investor purchases five bonds with staggered maturities extending out every two years. The laddered bond portfolio has a combined average annual yield of 3.42% and an average duration of 6 years.
2-Year
4-Year
6-Year
8-Year
10-Year
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
2.05
%
%
2.65
%
3.60
%
4.15
4.65
%
Assuming an initial investment of $100,000, an investor purchases five bonds with staggered maturities extending out every two years. The laddered bond portfolio has a combined average annual yield of 3.42% and an average duration of 6 years.
At the end of year two, the shortest bond matures and the four remaining bond investments are now two years closer to their maturity date. Proceeds from the maturing bond are reinvested back into the 10-year bond. The combined average annual yield of the new laddered bond portfolio is 4.05% and the average duration would remain at 6 years.
Original Ladder
2-Year
4-Year
6-Year
8-Year
10-Year
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
2.05
%
%
2.65
%
3.60
%
4.15
4.65
%
BOND A
$20,000
BOND B
$20,000
BOND C
$20,000
BOND D
$20,000
BOND E
$20,000
ladder two years later
BOND
MATURED
2-Year
4-Year
6-Year
8-Year
10-Year
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
6.00%
0.00
%
2.65
%
3.60
%
4.15
%
4.65
%
5.20
%
BOND A
$20,000
BOND B
$20,000
BOND C
$20,000
BOND D
$20,000
BOND E
$20,000
ladder two years later
BOND
MATURED
2-Year
4-Year
6-Year
8-Year
10-Year
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
6.00%
0.00
%
2.65
%
3.60
%
4.15
%
4.65
%
5.20
%
BOND A
$20,000
BOND B
$20,000
BOND C
$20,000
BOND D
$20,000
BOND E
$20,000
Ladder Two Years Later >>
<< ORIGINAL LADDER
This hypothetical example is for illustrative purposes only and does not represent the performance of any specific investment. Bond income is not guaranteed and may be subject to call risk as well as default risk, which increases with lower-rated bond securities.
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DOWNLOAD BOND LADDER WHITE PAPER
STRATEGY FACTS
11/2004
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DOWNLOAD Bond Ladder White Paper
DOWNLOAD Bond Ladder White Paper
CUSTOMIZATION
+
EXPERTISE
+
ACCESS
+
DIRECT ACCESS to our
team of investment professionals coupled
with expert guidance
and PERSONALIZED customer service
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Tax-Exempt Income
Capital Preservation
Actively managed strategy strives to provide investors with a reliable stream of income, principal protection, attractive risk-adjusted total returns, as well as ballast against equity market volatility.
Enhanced Bond Ladder
Enhanced laddered bond strategy is designed for various interest rate environments. Seeks to track the Bloomberg Municipal 1-10 Year Blend Index
during periods of lower rates and outperform during periods of rising rates.
LEARN MORE ABOUT BOND STRATEGIES
Oversight
The management team actively seeks opportunities for improving income and risk-adjusted returns through fundamental analysis, rigorous security selection, portfolio diversification, and credit monitoring.
ADVISORS ASSET MANAGEMENT'S
core tax-exempt
Strategy Inception
Bloomberg Municipal 1-10 Year Blend Index
benchmark
Tax-exempt income and capital preservation
Objective
$125,000
Minimum Investment
Presentation
Website
Profile
Additional Resources
meet the
Chief Executive Officer
Additional
Resources
Scott Colyer
President & CIO
Cliff Corso
®
Vice President, Portfolio Manager
Steven Majoris
Vice President
Portfolio Analyst
Sonja Reed
Len Reininger
Vice President
Credit Research
Are you a financial professional interested in learning more about AAM's Core Tax-Exempt Strategy?
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Contact Us at 866.606.7220
Additional Important Information:
This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product.
All investing involves risk; loss of principal is possible. Past performance is not indicative of future results. Diversification does not ensure against loss.
The results and portfolios for individual accounts may vary. Investment returns and principal value will fluctuate and there can be no assurance that any strategy’s objective will be achieved. See the ADV for Advisors Asset Management, Inc. and Strategy fact cards for more information about the firm, fees, strategies and related risks. Additional information may be required to make an informed investment decision.
AAM’s Core Tax-Exempt (CTE) Strategy seeks to offer investors tax-exempt income with a secondary emphasis on capital preservation. The strategy invests primarily in investment grade, short-to-intermediate maturity municipal bonds. AAM’s Core Tax-Exempt Strategy is actively managed by a committee of investment professionals. Top down economic analysis is employed to determine duration and credit risk exposure. Bottom-up valuation is utilized for security selection with an emphasis on balance through diversification across geography, revenue source, maturity, bond structure and position size. The management team actively seeks opportunities for improving income and risk-adjusted returns through fundamental analysis, rigorous security selection, portfolio diversification, and credit monitoring. Please view the current AAM Core Tax-Exempt Strategy fact card.
Under normal conditions, AAM will seek to invest strategy assets in accordance with the investment objectives as stated above. Unusual market conditions, special instructions and/or account restrictions may cause individual accounts to exhibit characteristics outside of the stated objectives and may impact our ability to achieve stated objectives.
RISKS: Fixed income securities, including municipal bonds, are subject to certain risks including, but not limited to: Interest rate risk is the danger that changes in interest rates may cause a decline in the market value of an investment. Credit risk is the risk that the bond issuer may not be able to pay interest or return principal due to changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral. Market risk, or systematic risk, is the risk that results from the characteristic behavior of an entire market or asset class. Below investment grade securities, also known as high yield or junk securities, may be considered speculative and may be subject to greater market and credit risks. Accordingly, the risk of default may be higher than with investment grade securities. In addition, these securities may be more sensitive to interest rate changes and may be more likely to make early returns of principal. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. Prepayment risk is the risk that debt issuers may repay or refinance their loans or obligations earlier than anticipated. Duration risk measures the sensitivity of a bond’s price to a one percent change in interest rates. The higher a bond’s duration, the greater its sensitivity to interest rates changes.
Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-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.
Definitions: The Bloomberg Municipal 1-10 Year Blend Index measures the performance of municipal bonds with maturities between one and 10 years. A credit rating is a quantified assessment of the creditworthiness of a borrower. AAA, AA, A, and BBB ratings are considered to be investment grade, while BB, B, CCC/CC/C and D are below-investment grade ratings, which present a greater risk of loss to principal and interest than higher-rated securities. US Government and Agency securities are generally considered to be of the highest quality.
Executive Director Portfolio Manager
JB Golden, CFA
®
Portfolio Analyst
Chris Dewlen
