Latest / Views from 6,230 / Beyond Tax-Free Income: The New Opportunities Emerging in Municipal Bonds

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Beyond Tax-Free Income: The New Opportunities Emerging in Municipal Bonds · Views from 6,230

• 0:10
  Ryan Nauman Host Views from 6,230: Hello, everyone, i'm Ryan Nauman, the host of the show.
• 0:14
  Ryan Nauman Host Views from 6,230: In a market as vast and fragmented as municipal bonds, navigating the landscape requires more than surface level analysis.
• 0:23
  Ryan Nauman Host Views from 6,230: It demands expertise, strategic portfolio construction, and execution at an institutional efficiency.
• 0:31
  Ryan Nauman Host Views from 6,230: My next guest is an industry expert who is going to help us shift through the noise and make sense of the interesting municipal bond market.
• 0:42
  Ryan Nauman Host Views from 6,230: I have already talked enough.
• 0:45
  Ryan Nauman Host Views from 6,230: Let's go ahead and bring on the star of the show.
• 0:48
  Ryan Nauman Host Views from 6,230: I'd like to give a very warm welcome to Brad Kreidel.
• 0:53
  Ryan Nauman Host Views from 6,230: Brad is the founder and president at Mainline West.
• 0:58
  Ryan Nauman Host Views from 6,230: Brad, thank you so much for coming on the show.
• 1:01
  Ryan Nauman Host Views from 6,230: It's an honor to have you.
• 1:02
  Ryan Nauman Host Views from 6,230: I'm really excited about this conversation.
• 1:05
  Ryan Nauman Host Views from 6,230: As we discussed earlier in the week, I don't have too many conversations about the muni market, so I'm always willing...
• 1:10
  Ryan Nauman Host Views from 6,230: It's always an interesting area.
• 1:13
  Ryan Nauman Host Views from 6,230: I always learn a lot, so really looking forward to this.
• 1:16
  Ryan Nauman Host Views from 6,230: Can you please tell us a little bit more about yourself and Mainline
• 1:19
  Brad Kreidle Founder & President Mainline West: I certainly can, Ryan, and thank you for the introduction.
• 1:22
  Brad Kreidle Founder & President Mainline West: Being in municipal finance, we're very rarely referred to as the star of the show, so that's an, that's an awfully nice start.
• 1:30
  Brad Kreidle Founder & President Mainline West: And for your listeners to know, while you're on the shores of Lake Tahoe, we're reporting from high in the Rocky Mountains.
• 1:36
  Brad Kreidle Founder & President Mainline West: So we're really pleased to be able to give munis a little bit of airtime.
• 1:40
  Brad Kreidle Founder & President Mainline West: I think, you know, we're in a pretty unique environment where, you know, it makes a lot of sense for investors and their advisors to, you know, have their periscope up and being be paying attention to what's opportunities in
• 1:51
  Brad Kreidle Founder & President Mainline West: the muni landscape right now.
• 1:53
  Brad Kreidle Founder & President Mainline West: You know, we've really come out of a period with that ZIRP and those hyper-low interest rates.
• 1:58
  Brad Kreidle Founder & President Mainline West: You know, we've had a significant adjustment of rates you know, through really the course of '21 through '25, both, you know, just, you know, response to the inflation and the Fed activities, but, you know, multiple macro factors.
• 2:10
  Brad Kreidle Founder & President Mainline West: But needless to say, it's a, it's a very timely conversation, and once again, thank you for in-inviting me on to speak.
• 2:18
  Ryan: Yeah, of course.
• 2:19
  Ryan: Of course.
• 2:20
  Ryan: So let's just start at the beginning.
• 2:23
  Ryan: why did you start MainLine West?
• 2:25
  Ryan: Was it, was there some event or periods of times that really opened up the door for you and your team that was like, "Hey, let's, provide some municipal institutional strategies on the municipal bond,"
• 2:39
  Brad Kreidle: Yeah, so we, we really saw, we we saw an interesting opportunity.
• 2:43
  Brad Kreidle: We saw an interesting competitive landscape.
• 2:47
  Brad Kreidle: So really, what, what occurred when we, you know, came up with the genesis in founding MainLine West, it was really transparency was occurring, you know, in all transactions in muni finance, you know, kind of budding internet-type disclosure and
• 3:00
  Brad Kreidle: transparency.
• 3:02
  Brad Kreidle: And you could see there was an incredibly dense food chain, you know, with many middlemen in terms of, you know, investors being able to access the market.
• 3:10
  Brad Kreidle: So it was clear that, you know, it was a deep food chain.
• 3:13
  Brad Kreidle: It represented a very com- you know, nice competitive landscape for us in terms of being able to compete on a number of different fronts and, and, and value propositions.
• 3:23
  Brad Kreidle: But that was very inspiring of really...
• 3:26
  Brad Kreidle: You know, I came from the institutional side of municipal finance, so we really wanted to elevate investors up into the institutional arena for not only buying and selling bonds within their portfolios, but providing them unique opportunities of products
• 3:42
  Brad Kreidle: that really weren't available in retail wrappers, and that's kind of our, you know, high-yield leverage product that we'll touch on a little bit.
• 3:48
  Brad Kreidle: But really, you know, the, the core kind of guiding light for us is let's provide something that, you know, institutional, that phraseology gets a little overused, and it's really, frankly, I think we just bring it down to wholesale.
• 4:02
  Brad Kreidle: You know, we're doing everything at a wholesale level, and we have kind of a unique business model where we have our own broker-dealer, so there's no e- there's never any middle market or middlemen or markups, so, you know,
• 4:13
  Brad Kreidle: just the most efficient way to deploy capital in munis.
• 4:17
  Brad Kreidle: And then we can get a little bit more specific on, you know, opportunities within the muni space.
• 4:22
  Brad Kreidle: But again, you know, we really just saw you know, retail investors kinda getting ripped off, frankly, and thought, you know, we could provide a, a much more interesting model for people.
• 4:32
  Brad Kreidle: And it, and it worked.
• 4:34
  Ryan: Yeah, that's fantastic.
• 4:36
  Ryan: It always helps when it works, Brad.
• 4:39
  Brad Kreidle: Yeah
• 4:39
  Ryan: Always helps when it works.
• 4:40
  Ryan: But it's interesting you brought up point of institutional.
• 4:43
  Ryan: You're right.
• 4:44
  Ryan: It's like almost every conversation we ha- something about institutional type strategies.
• 4:50
  Ryan: And I do think it's true, especially on the ETF space.
• 4:52
  Ryan: We're getting, more private markets, that weren't necessarily available to the retail side years ago.
• 5:00
  Ryan: But I love that you brought that up.
• 5:03
  Brad Kreidle: Well, the whole, the, the, the evolution of, you know, just such a variety of products, you know, used appropriately, you know, they're...
• 5:10
  Brad Kreidle: They, they make a lot of sense.
• 5:12
  Brad Kreidle: But what really we're trying to do is, you know, kind of get beyond the retail and, you know, elevate both that investor and the advisor into really, you know, high level of expertise, you know, in accessing the muni
• 5:25
  Brad Kreidle: market.
• 5:25
  Brad Kreidle: And really, that just flows down to, you know, everybody's bottom line
• 5:29
  Ryan: Yeah, you're exactly right.
• 5:31
  Ryan: Exactly right.
• 5:32
  Ryan: And the key term there that you use in that sentence, used appropriately.
• 5:38
  Ryan: I think that's very important in
• 5:40
  Brad Kreidle: Yeah
• 5:40
  Ryan: investing, especially in the private markets.
• 5:42
  Ryan: We're seeing that play
• 5:43
  Brad Kreidle: Well, and specific to munis, you know, they've done a great job on bringing in retail investors.
• 5:49
  Brad Kreidle: But you know, and that's, you know, that's just a fine, you know, average solution, and average is, you know you know, a g- a goal for a lot of people.
• 5:57
  Brad Kreidle: But what we're trying to do, you know, is, you know, elevate investors and their, you know, their advisors
• 6:03
  Ryan: Fantastic, Brad.
• 6:05
  Ryan: So let's just start.
• 6:06
  Ryan: You talked at the, briefly at the open about interest rates.
• 6:10
  Ryan: Can you just give us a little backdrop about the current m- municipal market?
• 6:14
  Ryan: What are some of the current characteristics?
• 6:17
  Ryan: What are the things you're watching closely?
• 6:19
  Brad Kreidle: There's two really important elements to talk about on the, on muni interest rates.
• 6:25
  Brad Kreidle: So, you know, kind of from a macro level, you know, we've seen all fixed income adjust to higher interest rates, you know, getting out of that ZIRP period that I mentioned before, the COVID, and then just subsequent to
• 6:37
  Brad Kreidle: that, you know, the period '22 to '25 interest rates really, you know, had to move up, you know, to battle the inflation issue.
• 6:46
  Brad Kreidle: But where we end up is really at very high, you know, absolute rates and, you know, real rates.
• 6:52
  Brad Kreidle: So depending upon where you position yourself on the curve, you know, particularly on an after-tax basis, you know, if you're, you know, kind of a medium taxpayer unit, you can easily get a seven percent taxable equivalent.
• 7:04
  Brad Kreidle: You know, and certainly if you're in New York or California you know, you're, you're, y- you can be, you know, in the ten to twelve, you know, if not higher on the taxable equivalent.
• 7:14
  Brad Kreidle: So it's very interesting just on absolute rates.
• 7:16
  Brad Kreidle: And then one characteristic of the market that's been really reinforced.
• 7:20
  Brad Kreidle: You know, you mentioned the, the really...
• 7:22
  Brad Kreidle: And the industry talks about the growth of the ETFs, the growth of, you know, all of these different products that are accessing the market.
• 7:29
  Brad Kreidle: But one thing that has held steady for an extended, very, very long period of time, but it's being reinforced by the, you know, the big growth in SMAs and ETFs that we can touch on.
• 7:42
  Brad Kreidle: But the municipal yield curve, meaning, you know, maturities and the interest rate that you receive going from one year out to thirty years, you know, it's very steep.
• 7:51
  Brad Kreidle: There's a very large differential there.
• 7:54
  Brad Kreidle: So depending upon, you know, what your objectives are you know, there, there's a lot of different opportunities to pick up yield.
• 8:01
  Brad Kreidle: You know, if you're making a lifetime commitment to the muni space, you know, you may wanna extend your maturities and pick up all that additional yield.
• 8:10
  Brad Kreidle: You know, one of our character-- one of our core themes and I will tout this because I don't know if, Brian, you even know it, but, you know, we were recently named a Zephyr top ten manager for a
• 8:22
  Brad Kreidle: ten-year period, so that was a lot of fun.
• 8:26
  Brad Kreidle: To, to get that.
• 8:27
  Brad Kreidle: But really what it does is, you know, that, that the, the eighty fifty strategy is meant to position yourselves on the curve where you're picking up eighty percent of the total yield available versus long bonds, but you're taking
• 8:41
  Brad Kreidle: fifty percent of the interest rate risk.
• 8:44
  Brad Kreidle: So, you know, there's a number of things that go into our, you know, investment philosophy and, you know, it's, you know, credit and diversification and, and, you know, rate setting ability.
• 8:55
  Brad Kreidle: But where you position on the curve can be very opportunistic because that steepness has two elements to it in terms of your return.
• 9:04
  Brad Kreidle: So not only are you picking up the coupon, but if you're an investor and really to frame, you know, our mentality, Ryan, is, you know, we consider ourselves dynamic, but, you know, that could also occur over a one
• 9:15
  Brad Kreidle: or two-year period, that dynamism.
• 9:18
  Brad Kreidle: So at any rate, you know, depending upon where you position on the curve, you, you have not only coupon opportunity, but, you know, as an example, in an unchanged interest rate environment, just the roll down the curve, you
• 9:30
  Brad Kreidle: know, that time elapse of one year, you know, that bond that you've held that, you know, was originally a ten-year maturity is now a nine-year maturity.
• 9:39
  Brad Kreidle: Assuming interest rates have not changed, you know, the nine-year is gonna trade at a lower yield to higher dollar price in theory.
• 9:46
  Brad Kreidle: So you've got, you know, m- many variables and components to look at.
• 9:50
  Brad Kreidle: But, you know, one of our kind of bellwether strategies is what we, you know, have, have kinda nicknamed or refer to as, you know, the eighty fifty strategy
• 10:00
  Ryan: Awesome, Brad.
• 10:01
  Ryan: Great information.
• 10:02
  Ryan: First of all, congratulations on being a PSN manager of the decade.
• 10:07
  Ryan: It's a very hard bogey to get that manager of the decade.
• 10:10
  Ryan: It shows great performance, consistent performance over 10 years.
• 10:15
  Ryan: Very hard to do.
• 10:17
  Ryan: Number two then you mentioned 7% in most municipalities, a 7% taxable tax equivalent yield.
• 10:26
  Ryan: Sounds very attractive to me.
• 10:28
  Ryan: New York, California, where I'm at, 12%, even more attractive.
• 10:32
  Ryan: And you talked about that steep yield curve.
• 10:35
  Ryan: What are some of the opportunities do these characteristics that you just talked about, what are some of the opportunities they present, those characteristics, for the current municipal market?
• 10:47
  Brad Kreidle: So it's really, you know, it's you know, again, specific as to where you want to pish- position your individual portfolio.
• 10:53
  Brad Kreidle: But, you know, what we call our dynamic funds are meant to really create, you know, high levels of tax-exempt income that, you know, generally exceed the, you know, high yield threshold of, you know, the, the kind of, you
• 11:06
  Brad Kreidle: know, what you'd refer to as the junk bond portfolios in our space or the high yield space.
• 11:11
  Brad Kreidle: And, you know, what, what they do is, you know, they, they gravitate down in credit quality.
• 11:16
  Brad Kreidle: And, you know, they're a fine diversified portfolio.
• 11:20
  Brad Kreidle: But what we're doing is something different, taking advantage of that structural differential between the short rates and the long rates, and we leverage the high-grade municipal securities and are cranking out like, you know, the, the high yield funds,
• 11:33
  Brad Kreidle: you know, in today's world, you know, kind of yield in that, you know, five to six percent range.
• 11:39
  Brad Kreidle: And this product is gonna be more of, you know, kind of the eight percent cash-on-cash distribution rate.
• 11:44
  Brad Kreidle: So, you know, a little bit different take on how you attain high yield in munis.
• 11:50
  Brad Kreidle: You know, it's, again, fairly you know, the, the structure itself that we utilize is embedded in the mutual fund complex, but just not utilized in ex- the exact same fashion.
• 12:00
  Brad Kreidle: And then if you kind of drill down, you know, there's, there's other kind of interesting developments within the muni space.
• 12:06
  Brad Kreidle: And, you know, the, the really with, you know, the Trump administration, you know, during his first presidency, you know, certain sectors of muni finance were under fire.
• 12:16
  Brad Kreidle: And then really, you know, munis got very jittery in, in early two thousand twenty-five based on the exemption and, you know, just the j- the kind of jockeying back and forth between the federal government and the states, which,
• 12:30
  Brad Kreidle: you know, is really an important element of, you know, not only all of our daily lives, but muni finance is that, you know, relationship of how s- you know, states wanna be s- you know, somewhat independent and you
• 12:41
  Brad Kreidle: know, certainly, you know, for ground level things and boots on the ground, you know, makes all the sense in the world that muni finance is, is dispersed downward.
• 12:50
  Brad Kreidle: But, you know, the, the...
• 12:51
  Brad Kreidle: a couple of things that, that came out of the Big and Beautiful bill, which were, were interesting.
• 12:57
  Brad Kreidle: One of them really addresses the, you know, the housing shortage.
• 13:00
  Brad Kreidle: So you can read various studies that come in with, you know, the, the country's three and a half to four million houses short.
• 13:08
  Brad Kreidle: And Big and Beautiful had, you know, the ROADS Act, which, you know, it, it, it looks positive.
• 13:14
  Brad Kreidle: You know, it's estimated that it might add, you know, five hundred thousand houses to the stock.
• 13:19
  Brad Kreidle: But one of the areas that muni finance has has been, has been doing for a long time, but will be expanding is, you know, housing type finance.
• 13:30
  Brad Kreidle: So there's two types of housing finance in munis.
• 13:33
  Brad Kreidle: There is, you know, the multifamily, which is not unlike the rental and then there's the single family.
• 13:38
  Brad Kreidle: So we're seeing, you know, on Big and Beautiful, more flexibility on how the tax-free multifamilies get structured.
• 13:47
  Brad Kreidle: So you're gonna see a lot more of those.
• 13:49
  Brad Kreidle: And it's kind of led by, you know, the, the lightning is Mamdani.
• 13:53
  Brad Kreidle: You know, he's taking up his program over the next ten years significantly.
• 13:59
  Brad Kreidle: I think about a two hundred percent increase.
• 14:01
  Brad Kreidle: I believe the objective is about a hundred billion to have total outstanding bond issues for multifamilies in New York City.
• 14:10
  Brad Kreidle: So we're seeing that expand, and then the states have their own single-family programs, which are quite interesting, are geared to that first-time homebuyer.
• 14:19
  Brad Kreidle: So muni finance has been doing multifamily and single family finance for, you know, fifty plus years, but it's even more important now.
• 14:28
  Brad Kreidle: So those are two sectors that we really like.
• 14:31
  Brad Kreidle: You're able to pick up additional yield, and they're credit secured.
• 14:34
  Brad Kreidle: You know, typically they're gonna be Ginnie Fannie type underlying.
• 14:37
  Brad Kreidle: So where you're taking...
• 14:39
  Brad Kreidle: You know, on the single family, you take some prepayment risk on.
• 14:42
  Brad Kreidle: But in either of those programs, you know, on, on, you know, the at least the Fannie Freddie kind of Ginnie Mae programs, you know, you're not taking any credit risk.
• 14:51
  Brad Kreidle: So they're interesting.
• 14:52
  Brad Kreidle: The other thing that has, has kinda transpired in munis that is really kind of important and it plays into, you know...
• 15:01
  Brad Kreidle: There's obviously, you know, big m- macro factors and, you know, one of them is, you know, how is AI gonna play out?
• 15:08
  Brad Kreidle: But one of the new structures in muni finance that really has a head of steam are what are called gas prepayment bonds.
• 15:16
  Brad Kreidle: So muni issuers come in and issue tax-exempt financing, and they have a counterparty, which is, you know, a big bank, a Goldman Sachs or, you know, leading national bank or insurance company, and they guarantee, you know, discounted long-term
• 15:34
  Brad Kreidle: contracts you know, for energy users.
• 15:37
  Brad Kreidle: So it's, it's very beneficial for, you know, the issuer and its community.
• 15:41
  Brad Kreidle: They're locking in discounts to spot rates for a long period of time.
• 15:46
  Brad Kreidle: It enables really these corporates to borrow at, you know, tax-free rates.
• 15:51
  Brad Kreidle: So, you know, they're borrowing at attractive rates, and it's becoming a big sector of our market.
• 15:56
  Brad Kreidle: It's bec- you know, it's grown beyond five percent.
• 16:00
  Brad Kreidle: And if you're comfortable with the, you know, the large counterparties you know, you can pick up a lot of additional yield for having, you know, relatively short bonds.
• 16:09
  Brad Kreidle: So that's an exciting development that's got kind of, you know, both the feel-good and good economics.
• 16:15
  Brad Kreidle: You know, it's definitely providing a, you know, a great purpose to the, you know, to the ratepayers, frankly, you know, the community.
• 16:22
  Brad Kreidle: So that's an interesting product that's out.
• 16:25
  Brad Kreidle: You know, one that's a little bit you know, outer space, but, you know, it also could be very realistic is you know, the, the ability to, to finance, you know, things in outer space, space ports things that could
• 16:39
  Brad Kreidle: be AI-related with municipal bonds.
• 16:42
  Brad Kreidle: So, you know, tax-advantaged, you know, borrowing is, is interesting and while we've talked about some things, you know, boots on the ground, homes you know, basic necessities, you know, this, this other opportunity, you know, as it unfolds over
• 16:56
  Brad Kreidle: the next five to ten years, you know, it could be quite intriguing you know, to see the, to see muni finance, you know, in outer space.
• 17:05
  Ryan: Yeah, that's inter- Brad not something I thought.
• 17:08
  Ryan: Normally when you think of municipals, you think of state, city level municipals, not space level municipal.
• 17:16
  Ryan: Maybe another conversation, I just wonder how that tax, exempt tax status works on that.
• 17:21
  Ryan: Is that like a, kinda like a treasury?
• 17:23
  Ryan: Or do you know...
• 17:25
  Ryan: Like, how
• 17:25
  Brad Kreidle: well,
• 17:25
  Ryan: work?
• 17:26
  Brad Kreidle: they'll be conduit facilities.
• 17:28
  Brad Kreidle: So the ability to borrow at tax-exempt rates, but obviously, you know, there, there'd have to be a guaranteed revenue stream.
• 17:35
  Brad Kreidle: You know, very unlikely that would be done at a state, you know county or city level.
• 17:40
  Brad Kreidle: But we're, we're just gonna have to see how this, this all unfolds, Ryan.
• 17:44
  Brad Kreidle: But you know, it...
• 17:45
  Brad Kreidle: You, you know, with SpaceX X going public and, you know, all of these, you know, ideas that, you know, we thought were maybe, you know, 20 or 50 years away, you know, they're, they're actually, you know, they, they
• 17:57
  Brad Kreidle: may materialize in the next five to 10 years in a really big way
• 18:02
  Ryan: Definitely something worth watching.
• 18:04
  Ryan: I know I'm gonna be watching it very closely because a year ago I wouldn't have thought it was an option, like you said, especially in five years, and we're talking sooner than that.
• 18:15
  Ryan: Very interesting there.
• 18:17
  Ryan: Let's talk about the gas prepaid bonds.
• 18:20
  Ryan: interesting space there.
• 18:22
  Ryan: Again, like I said, municipals, a lot of times you just talk about water or other municipals, like building a stadium, stuff like that.
• 18:32
  Ryan: You don't think of gas prepaid bills.
• 18:34
  Ryan: What are some of the benefits there that they can provide investment portfolios?
• 18:39
  Brad Kreidle: Well, really it's, you know, it's, it's not only a, a new diversifier and, you know, should be a component within the portfolio because now, you know, if you're looking at, you know, muni indexes that, you know, that the
• 18:52
  Brad Kreidle: gas pre sector's gonna be beyond five percent.
• 18:56
  Brad Kreidle: But really, you know, the, the, the interesting thing is, you know, they're trading more like a spread product in munis.
• 19:01
  Brad Kreidle: And munis, you know, in general, I would characterize them as a spread product, that, you know, the spreads widen out when the mood is more gloomy, spreads can narrow.
• 19:11
  Brad Kreidle: And that would, I would say would be kind of a general characterization as the relationship to treasuries.
• 19:16
  Brad Kreidle: You know, muni interest rates are gonna largely move with treasuries, but not necessarily in lockstep.
• 19:22
  Brad Kreidle: But the opportunity really for the investor and the portfolio to own the gas prepaid bonds is, you know, you're just picking up a ton of yield inside of 10 years.
• 19:31
  Brad Kreidle: So typically, you know, some of them might have long maturities, but you know, 10-year put dates, and then they've been issued for a while, so you can buy, you know, fairly easily decent size, you know, in the five
• 19:44
  Brad Kreidle: to 10-year maturity bucket.
• 19:46
  Brad Kreidle: And the yields are quite attractive.
• 19:47
  Brad Kreidle: So, you know, the, the longest paper would be kind of that, you know, four and a quarter to four and a half on, you know, the tax-exempt basis, which then that pumps up that after-tax equivalent.
• 19:58
  Brad Kreidle: You know, that's a bigger number than a seven, so you're approaching an eight.
• 20:01
  Brad Kreidle: So it's a pretty nifty yield pickup item that you know, we spend a lot of time...
• 20:06
  Brad Kreidle: You know, we're, we're...
• 20:08
  Brad Kreidle: You know, muni finance is kind of, you know, it's s- we're, we're slow-moving beasts.
• 20:11
  Brad Kreidle: You know, we take this all very seriously, but, you know, generally speaking, you know, we're going to look at a sector or an area that we hadn't previously invested, we're gonna probably spend about a year if not longer,
• 20:24
  Brad Kreidle: determining, you know, if, if we wanna, if we wanna play in that sandbox.
• 20:28
  Brad Kreidle: So you know, it's, it's it's an interesting available opportunity in the market that, you know, is going to grow.
• 20:36
  Brad Kreidle: It's got the, you know, the macro and the micro demand.
• 20:39
  Brad Kreidle: So you know, we're, we're you know, actively tracking it and investing in it
• 20:46
  Ryan: I, a very interesting other space that, like I said, yeah, I, at least for me, at least for me, it- it's a newer space.
• 20:56
  Ryan: Like I said, municipals, I usually just kinda group them all together.
• 21:00
  Ryan: So with those gas prepaid bonds, you talked about the benefits.
• 21:03
  Ryan: Are the risk, you mentioned earlier counterparty risk, potentially that's a risk, but how's the liquidity then?
• 21:10
  Ryan: You talked about, nine years, 10 years.
• 21:13
  Ryan: Is there a higher liquidity than, say, more on the private side?
• 21:17
  Brad Kreidle: There's definitely good liquidity.
• 21:19
  Brad Kreidle: So you know, Wall Street, you know, to say the least, is pretty geeked up.
• 21:24
  Brad Kreidle: So, you know, we're seeing-- You know, we, we deal with all the big trading desks, and they're all making very active markets and trading large volumes.
• 21:33
  Brad Kreidle: So it's, you know, highly liquid you know, and, and a deep market.
• 21:37
  Brad Kreidle: You know, I'm, I'm, I'm impressed, to be honest with you
• 21:42
  Ryan: It be- was, like I said, w- liquidity, it's one thing that we often forget about within equities and for the most part, fixed income.
• 21:53
  Ryan: But this past year it was really front and center with the private credit and issues there and individual retail clients trying to get their
• 22:01
  Brad Kreidle: It's, that's, that's a just a classic, you know, mismatch.
• 22:04
  Brad Kreidle: You know, there's, there's a place for private credit, and there's managers, you know, who are, who are superlative.
• 22:11
  Brad Kreidle: But, you know, the classic mismatch of, you know, long-dated obligations and, you know short-term investors, you know, that's just so goofy.
• 22:18
  Brad Kreidle: So, you know, that's again, you know, that's kind of paramount to what we do is deal in, you know, the liquid markets, the high-grade securities.
• 22:26
  Brad Kreidle: So, you know, on a day's notice, you can, you can either be buying and selling exactly what you want.
• 22:32
  Brad Kreidle: And, you know, that's also a good component of, you know, a portfolio, a muni portfolio, you know, is to have maybe some of those shorter maturities, you know- 5% or 10%, I mean, it all depends on what kind
• 22:45
  Brad Kreidle: of flexibility and ability to move your money around is.
• 22:48
  Brad Kreidle: But, you know, stock market's getting hammered, you know, your two to three year munis have held in quite well.
• 22:54
  Brad Kreidle: You know, it might be a good opportunity to sell those and buy into a weakened equity market.
• 22:59
  Brad Kreidle: So, you know, it's really, it does have the ability not only to provide ballast, but pr- you know, to provide capital that is liquid and, and not, not really kind of enduring or going through.
• 23:11
  Brad Kreidle: You know, both Ryan and all of your audience, you know, we, we live in a period of, you know, relatively high volatility.
• 23:19
  Brad Kreidle: So, you know, being able to determine what level of volatility you can live with, you know, and what elements of your portfolio and then which elements should be less volatile, you know, that's also the muni opportunity.
• 23:30
  Brad Kreidle: And that's the, you know, the nifty thing about muni finance and you know, I'm obviously excited to talk about it on, on this podcast.
• 23:38
  Brad Kreidle: You know, I, I very rarely bring it up at cocktail parties.
• 23:42
  Brad Kreidle: But the, the muni universe is very fragmented, very diverse.
• 23:46
  Brad Kreidle: So, you know, in size it's, you know, four and a half trillion.
• 23:50
  Brad Kreidle: It's gonna be five trillion by 2020.
• 23:52
  Brad Kreidle: It's a decent size.
• 23:53
  Brad Kreidle: But the remarkable thing is there's so many different distinct issuers.
• 23:57
  Brad Kreidle: You know, there's 50 to 60,000 different issuers.
• 23:57
  Brad Kreidle: Each of those issuers then have, you know, their own book of borrowings, their own amortization schedule, their own structures, the call features, you name it.
• 24:09
  Brad Kreidle: So, you know, that's really where the opportunity is in munis.
• 24:13
  Brad Kreidle: So, you know, they can be homogenized and sold in, you know, plain vanilla packages, and that's obviously, you know, what one of the elements of finance and investing is geared towards.
• 24:24
  Brad Kreidle: But there's so much more in terms of, you know, the diamonds in the rough and the unique structures and...
• 24:31
  Brad Kreidle: You know, sometimes it's, you know, organizations such as ourselves that are a little smaller and more nimble where, you know, your large mutual fund companies, you know, they simply can't participate in those because they don't wanna have an
• 24:43
  Brad Kreidle: analyst spend any time on it 'cause it's too small relative to their overall, you know, portfolio.
• 24:49
  Brad Kreidle: So you know, there's a bifurcation that exists in, in munis and muni investing.
• 24:53
  Brad Kreidle: So, you know, for those people that wanna s- you know, peel back the onion, for those investors and their clients, the opportunities are there, the yield pickup is there, really just delivering, you know, higher income to the bottom
• 25:05
  Brad Kreidle: line.
• 25:06
  Brad Kreidle: So, you know, that's r- really what we're, we're, we're advocates of.
• 25:10
  Brad Kreidle: You know, we don't wanna make...
• 25:11
  Brad Kreidle: You know, while we consider ourselves experts and spend a lot of time, you know, we're myopically focused on munis and all of the details, you know, we don't want that to be a burden for the advisor or h-
• 25:22
  Brad Kreidle: his or her client.
• 25:23
  Brad Kreidle: So that's part of our, you know, normal communication schedule and protocol that we'll give, you know, weekly updates and monthly updates, and we're not asking anybody, any advisor to be glued to them.
• 25:37
  Brad Kreidle: But know that we can simplify your life, because if you're prepping for your next client meeting, you can go back and look at our library of what we thought was interesting, you know, over the last four months.
• 25:49
  Brad Kreidle: And, you know, we can, we can provide you that expertise as an advisor, and then bring your client up that learning curve as well, which, you know, in the, in the world of investing, you know, as, as much
• 26:01
  Brad Kreidle: of that as occurs and the, you know, as much time is i- and rapport is built with the clients and understanding their objectives, you know, that's just key in successful investing
• 26:12
  Ryan: Yeah, Brad, that's fantastic.
• 26:14
  Ryan: And I feel as if there's, in the whole investment management financial market space, there's spaces that maybe you can do on your own.
• 26:23
  Ryan: You can get a vanilla index fund and do all right, maybe large cap core.
• 26:29
  Ryan: Fixed income one space highly recommend going active, hiring a manager to do it because it's so vast.
• 26:38
  Ryan: It's so much bigger than the equity market.
• 26:41
  Ryan: And then like you said, munis, that's a wh- so fragmented, so another very good opportunity to alpha, find outperformance, and use pay a little bit extra to get professional
• 26:55
  Brad Kreidle: Yeah, no, you're--
• 26:56
  Ryan: worth
• 26:57
  Brad Kreidle: you, you, make a really valid and good point because as everybody's kind of contemplated really for the last couple years, you know, what, what is AI's impact gonna be, and how is it gonna impact me, and how does
• 27:08
  Brad Kreidle: it impact our business?
• 27:09
  Brad Kreidle: And, you know, it's an integral part of, you know, how we operate.
• 27:12
  Brad Kreidle: But, you know, it's certainly true that you still need that, you know, that, you know, the human to make the final call.
• 27:20
  Brad Kreidle: You know, you can set your parameters and your algorithms, but, you know, there's no question of a doubt in my mind, and it's certainly touting, you know, our, our business.
• 27:30
  Brad Kreidle: But you know, I can say just my own experiences, like, you know, AI and, and algorithms and, you know, technology really do help.
• 27:38
  Brad Kreidle: But ultimately, you know, you've got to have your hands on the steering wheel.
• 27:41
  Brad Kreidle: There's no doubt about it
• 27:44
  Ryan: You're exactly right.
• 27:45
  Ryan: So we've talked about a lot during this conversation accessibility, bringing some of these strategies to the retail side.
• 27:55
  Ryan: So that brings me to ETFs, which are just growing in popularity right now.
• 28:01
  Ryan: Muni ETFs have grown in size.
• 28:04
  Ryan: Do you think they're a good way for financial advisors to gain exposure to munis, and do they provide additional opportunities than just buy and hold,
• 28:13
  Brad Kreidle: Yeah, you're, you're, you're asking an interesting question.
• 28:16
  Brad Kreidle: So, you know, it's got two elements and, you know, I kind of had said earlier, you know, that, that some of these products, you know, they've done a fantastic job of bringing in retail money and getting retail acquainted
• 28:28
  Brad Kreidle: with muni finance, and that's, that's a very positive thing.
• 28:32
  Brad Kreidle: But, you know, the, the ETFs you know, the, the ETFs have had substantial growth.
• 28:37
  Brad Kreidle: So we've both seen SMAs and ETFs over the last ten years, you know, kinda triple their imprint.
• 28:43
  Brad Kreidle: So, you know, that reverts back to the conversation where the SMAs are largely buying in that short end.
• 28:49
  Brad Kreidle: They create, create that steep yield curve.
• 28:51
  Brad Kreidle: They reinforce that structural element.
• 28:54
  Brad Kreidle: Now, the muni ETFs, you know, the big ones, you know, MUB and VTEB you know, highly liquid, you know, good active market makers.
• 29:03
  Brad Kreidle: They'll trade at marginal discounts or premiums, but pretty true to their value.
• 29:10
  Brad Kreidle: You know, but a fairly set and specific kind of part of the market that you're buying into a part of the curve.
• 29:15
  Brad Kreidle: Now, the interesting thing about that and is, you know, had a fairly big impact on MainLine West and our dynamic funds, is through the growth of these asset classes is, you know, one of the things that's been very
• 29:29
  Brad Kreidle: difficult to do historically is to hedge specific muni interest rate risk.
• 29:35
  Brad Kreidle: And, you know, the closest proxy we talked about was, you know, Treasuries are gonna give you the general movement, but, you know, munis can be going through a supply-demand dynamic of their own.
• 29:46
  Brad Kreidle: You know, Treasuries could be in a flight to quality rally.
• 29:48
  Brad Kreidle: So there, there can be kind of...
• 29:50
  Brad Kreidle: it's, I call it a sort of a moody relationship but the interesting thing about now the size of these municipal bond ETFs, they're big enough where you can go directly, you know, and manage your municipal interest rate exposure
• 30:07
  Brad Kreidle: by just shorting the stock.
• 30:09
  Brad Kreidle: So that's a very interesting development and has now become sizable enough.
• 30:13
  Brad Kreidle: So, you know, you could have done that, you know, three or four years ago, but you just couldn't have done it in any sort of, you know, size for, you know, a m- a investment manager such as ourselves.
• 30:23
  Brad Kreidle: But today that opportunity is open, and we do utilize that.
• 30:27
  Brad Kreidle: So very, very interesting.
• 30:29
  Brad Kreidle: You know, as, you know, as...
• 30:31
  Brad Kreidle: You know, sometimes people do think muni finance is sleepy.
• 30:33
  Brad Kreidle: It does continue to innovate and grow, so that's a very, you know, dr- dramatic development, as well as other products that you're able to get, you know, really through prime brokerage relationships that we largely deploy in our dynamic
• 30:46
  Brad Kreidle: fund.
• 30:46
  Brad Kreidle: So we can expand on that at a later date.
• 30:48
  Brad Kreidle: But you know, I think it's a, it's a good time, like, you know, and I'd said earlier, it's a good time to be paying it- paying attention to munis.
• 30:55
  Brad Kreidle: Yields are high, you know, real rates are high.
• 30:58
  Brad Kreidle: And there's, there's, there's plenty of opportunities.
• 31:00
  Brad Kreidle: So we're, we're pretty enthused about, you know, today's world
• 31:05
  Ryan: Yeah, fantastic.
• 31:06
  Ryan: So Brad, let's just finish this up.
• 31:08
  Ryan: You mentioned earlier that muni strategy is in a SMA wrapper, separately managed account.
• 31:15
  Ryan: You're in PSN, been named a manager of the decade.
• 31:20
  Ryan: stuff there.
• 31:21
  Ryan: So my question is then why did you decide the SMA wrapper was the good vehicle for your strategy?
• 31:29
  Ryan: Why did you choose SMA versus ETF or something different?
• 31:32
  Brad Kreidle: Yeah.
• 31:33
  Brad Kreidle: No, that's a, that's a that's a, a question that really...
• 31:37
  Brad Kreidle: You know, so the SMA wrapper allowed us the, the greatest flexibility, you know, to compete at the, you know, lowest management fees.
• 31:47
  Brad Kreidle: And where, you know, the ETFs really don't fit our high yield strategy is, you know, the 40 Act funds and ETFs, you know, they're pretty strict parameters as to, you know, how you operate, what kind of leverage you're
• 32:00
  Brad Kreidle: able to utilize.
• 32:01
  Brad Kreidle: So, you know, that is, again, it's outside of really, you know, that true retail investor.
• 32:07
  Brad Kreidle: So what we're doing is bringing, you know, a more sophisticated strategy to those, you know, kind of that more high net worth investor that it's appropriate for
• 32:18
  Ryan: Awesome, Brad.
• 32:19
  Ryan: Thank you so much.
• 32:20
  Ryan: Such a fun conversation.
• 32:22
  Ryan: Very insightful.
• 32:23
  Ryan: I love your comments about the spaceports and the gas prepaid bonds.
• 32:29
  Ryan: Really interesting stuff.
• 32:31
  Ryan: Thank you so much for sharing great insight on them.
• 32:34
  Ryan: Where can our audience get more information about Mainline West?
• 32:39
  Brad Kreidle: Yeah.
• 32:39
  Brad Kreidle: Great, Ryan.
• 32:39
  Brad Kreidle: Thank you.
• 32:40
  Brad Kreidle: So website is mainlinewest.net.
• 32:44
  Brad Kreidle: And there we publish our, you know, our monthlies and our weeklies.
• 32:47
  Brad Kreidle: We're on LinkedIn.
• 32:48
  Brad Kreidle: Again, mainlinewest.net.
• 32:51
  Brad Kreidle: You can find us there.
• 32:52
  Brad Kreidle: And we'll also include some show notes, and I've got a couple topical things that we'll include a- as attachments
• 33:00
  Ryan: Fantastic, Brad.
• 33:01
  Ryan: We will put those in the description for sure.
• 33:04
  Ryan: Thank you so much, Brad.
• 33:05
  Ryan: Such an honor to have you on.
• 33:07
  Ryan: And thank you everyone for listening You can watch all of our other episodes on YouTube and Spotify.
• 33:13
  Ryan: Also, please be sure to like and subscribe to those channels and give us a follow on LinkedIn.
• 33:18
  Ryan: you very much and have a great rest of your week
• 33:22
  Brad Kreidle: Thank you very much