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2 FOR INVESTMENT PROFESSIONAL USE ONLY Michael Wedekind Opportunities in the Municipal Market Since the novel coronavirus (COVID-19) careened into our collective consciousness in February, municipal bond markets have convulsed wildly and distinctly to the downside. Investors have since sold much of their intermediate- and long-dated holdings in a mad rush for liquidity, and municipal bond funds were no exception, witnessing some of their largest outflows in the history of the asset class. In fact, Baird Advisors noted that the $12.3 billion net outflow from municipal mutual funds and ETFs (source: Lipper) was not only the largest weekly outflow in history, but was three times larger than the last record. This sell-off was reflected in terms of both price and the muni-Treasury ratio, which, for bonds with maturities less than ten years, has typically averaged below 100%. According to Thompson Reuters MMD, AAA-rated municipals at the two-, five-, and ten-year tenors yielded an unheard-of 787.5%, 533.3%, and 320.7% of their duration-matched Treasurys last Friday (3/20/2020). Fed support for the Treasury market and legitimate fundamental concerns about state and municipal budgets undoubtedly played their role in this dislocation, and there is likely to be more volatility to come. However, with muni-Treasury ratios still over 300% out to the ten-year tenor on March 24, the market has rarely presented such attractive relative valuations. Michael Manning Has the Dominance of Growth Stocks Finally Sputtered? Well, not exactly. Growth stocks are certainly down, as are all major indices so far in 2020. And higher beta stocks, which by definition are more exposed to a market downturn and tend to be held in a lot of growth portfolios, have significantly underperformed as investors have de-risked broadly in recent weeks. However, value or cyclical stocks have actually performed worse and momentum stocks have held in better. To dig into it a bit, growth indices are dominated by a few big sectors, including Information Technology, Consumer Discretionary, Healthcare, and the newer Communication Services sector. And while the market is down about 25% so far in 2020 (as of March 24), these four sectors are down between 15% and 22%, showing some strong resiliency in this downturn. As a further boost, growth indices also have a very minor stake in the Energy sector, which is really struggling and down about 50%, and are also less exposed to cyclical stocks like manufacturers and retailers. If you talk to growth managers, they will point to their companies' differentiated business models and strong competitive advantages that provide protection in a struggling market. Thus far this has largely played out, and the dominance of growth over value that we have seen for a decade plus has continued even amid the coronavirus pandemic.