Advisors debate how to make muni bond allocations count

investmentnews.com:

A municipal bond allocation is often considered to be the foundation of a successful long-term investment portfolio, especially for high-net-worth individuals.

The big question facing financial advisors now is what typeof municipal bonds should serve as the building blocks to create that foundation, especially in this new higher-rate environment.

Revenue bonds. General obligation bonds. High-yield munis. In-state. Out-of-state. They can all play a part in creating a municipal bond allocation.

The choices don’t end there. Advisors also need to decide how, where and for how long they want to own these critical portfolio ingredients. Should they buy municipal bond funds or individual bonds for their clients? And should the munis reside in a taxable or non-taxable account? They are tax-efficient, you know! And shoot, what about a muni bond ladder? And for what duration?

Yep, there are lots of questions swirling around this most basic of asset classes. The good news is that broadly speaking, the picture looks really sound in muni world.

“Most states have rainy day funds that are as high as they’ve ever been. So even if we’re approaching some type of recession and tax receipts fall off, they have plenty of cash sitting in the bank to help cover any kind of shortfall,” said Scott Diamond, portfolio manager of the Goldman Sachs High Yield Municipal Fund.

When it comes to his favorite types of bonds currently trading in the market, Diamond, who also co-heads the municipal bond team at Goldman Sachs Asset Management, is a fan of so-called “special assessment bonds.”

“Think of it as a land-backed project. Single-family homes, those types of things. There’s a shortage of homes. There’s immigration to places like Texas and Florida,