Baird Short-Term Municipal Bond Fund Receives Refinitiv Lipper Award

MILWAUKEE, March 6, 2020 – Employee-owned Baird announced that the Baird Short-Term Municipal Bond Fund (BTMIX) has received the 2020 Refinitiv Lipper Fund Award. The fund was named Best Fund Over 3-Years for the period ending November 30, 2019, among 39 short term municipal debt funds.

The Baird Short-Term Municipal Bond Fund is co-managed by Duane McAllister, CFA, Erik Schleicher, CFA, Joe Czechowicz, CFA and Lyle Fitterer, CFA, who joined the team in August 2019. 

"We are extremely proud of our municipal bond investment team and this award," said Baird Advisors Chief Investment Officer and Baird Funds President Mary Ellen Stanek, CFA. "This recognition is well deserved and speaks to the competitive performance this team has consistently delivered to clients."

For more than 30 years, the Refinitiv Lipper Fund Awards have honored funds and fund management firms that have excelled in providing consistently strong risk-adjusted performance relative to their peers. The merit of the winners is based entirely on objective, quantitative criteria. Find out more at www.lipperfundawards.com.

Municipal Market Q&A

The team, which strives to deliver consistent, competitive risk-adjusted returns for clients, recently sat down to answer questions about the current municipal market environment, their unique approach to investing and the role short-term bond funds should play in a diversified portfolio.

What role does a short-term municipal bond fund play in an investor’s portfolio?
A short-term fund is typically a very good risk/reward trade-off for investors – allowing them to earn a good portion of the available yield in the curve while taking less interest rate risk. That’s especially true currently with a relatively flat tax-free curve. Investing in a 10-year muni rather than a 2-year maturity offers less than 30 bps (0.30%) of additional yield, providing relatively little yield incentive to extend. And although rates have been stable for the last several years, many investors remain concerned that yields will rise at some point since current rates are at or near all-time lows. A short-term municipal fund allows them to earn a competitive tax-free yield while they wait for the rate trend to change. We also find that investors generally don’t want a lot of volatility in their fixed income allocation, accepting that instead in other, riskier, asset classes – equities, international and alternatives, for example. Investment grade quality municipals are the anchor of their portfolio, providing stability and a modest level of income. Thinking of it that way, minimizing duration risk with shorter-term municipals makes even more sense.
What is the credit makeup of the fund? Where are you taking credit risk?

We have a very high-quality focus in our short-term municipal fund right now. Fortunately, the overall credit backdrop for the municipal market is also strong, so there are many good quality credits to choose from. We are in the 11th year of an economic expansion and while the pace is not fast, it is still growing. Municipalities prudently rebuilt their reserves after the financial crisis in preparation for the next recession whenever it occurs. That said, market yields largely reflect the credit strength of most municipal credits and the additional yield available to investors for stepping down in quality is relatively narrow. With all of the money coming into bond funds, it is harder to find lower quality credits that provide sufficient yield for the additional risk. This supports our higher quality focus currently.

When credit spreads widen out again, however, and they will at some point, we do like taking a modest amount of credit risk in short-term maturities. There are two reasons for this. First, we have greater visibility and understanding of a municipal credit that comes due in two years rather than in 30 years. It’s important to note that rating agencies rate municipalities not their individual bonds, which means that the 30-year bonds are rated the same as the two-year bonds, and this creates an opportunity for us. We may know that a municipality has the resources to pay debt in two years, but it is harder to predict in 30 years. Second, even if our credit assumptions are wrong, the fact that these are shorter-term bonds means they are likely to mature and self-liquidate before any significant issues occur. The self-liquidating nature of the short end of the curve is an appealing feature of taking credit risk in a short-term fund.

Are there other strategies that help maintain or add yield to the portfolio?
We look to balance exposure to credit risk with other structural opportunities such as bonds with unique cash flow characteristics. State-sponsored, single-family housing bonds are a good example. These are generally very high-quality credits, backed by a pool of mortgages which in many cases are federally guaranteed. What makes these bonds higher yielding is their cash flow variability, which is based on the pace of mortgage refinancing. Having the ability to model these cash flows means we can pick up a fair amount of additional yield in a low risk manner. We like opportunities like that to maintain yield in the fund while minimizing credit risk late in the cycle. While we aren’t anticipating a recession, at some point the economy will slow and credit spreads will widen. When that occurs, these higher-quality bonds will likely perform better than lower-rated bonds. For that reason, we are currently overweight housing issues with a well-defined average life of 3–5 years, a perfect maturity range for a short-term municipal fund.
What is the best balance between tax-exempt and taxable exposure for the average investor?
For those in moderate income tax brackets, there are times when investors may want to overweight taxable bonds and at other times tax exempt. The relative value of taxable and tax-exempt bonds does vary so we closely monitor cross-market valuations. The average investor should ideally have a well-diversified bond portfolio with exposure to both. Municipal risk is different from corporate risk and performs differently at different points in a credit cycle. Paying attention can help enhance an investor’s returns. For more on this subject, see our recent white paper "Better Together."

About Baird Funds
Baird Funds is a no-load mutual fund family with more than $65 billion in assets as of December 31, 2019. The Baird Funds offer proven track records and a diverse suite of portfolios across fixed income and equity asset classes. The ten bond funds and six equity funds feature competitive fees and are managed with a careful focus on risk control. For more information, visit www.bairdfunds.com

About Baird
Putting clients first since 1919, Baird is an employee-owned, international wealth management, asset management, investment banking/capital markets, and private equity firm with offices in the United States, Europe and Asia. Baird has approximately 4,600 associates serving the needs of individual, corporate, institutional and municipal clients and more than $300 billion in client assets as of December 31, 2019. Committed to being a great workplace, Baird ranked No. 13 on FORTUNE’s 2020 100 Best Companies to Work For list. Baird is the marketing name of Baird Financial Group. Baird’s principal operating subsidiaries are Robert W. Baird & Co. Incorporated in the United States and Robert W. Baird Group Ltd. in Europe. Baird also has an operating subsidiary in Asia supporting Baird’s investment banking and private equity operations. For more information, please visit Baird’s website at www.rwbaird.com.

For additional information, contact:
Jody Lowe
414-322-9311


The Refinitiv Lipper Fund Awards, granted annually, highlight funds and fund companies that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The Refinitiv Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. The fund with the highest Lipper Leader for Consistent Return (Effective Return) value in each eligible classification wins the Refinitiv Lipper Fund Award. For more information, see lipperfundawards.com Although Refinitiv Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Refinitiv Lipper.  

Performance data represents past performance and does not guarantee future results.  The investment return and principal value of the investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance data may be lower or higher than the data quoted. To read the fund’s prospectus or to obtain the fund’s performance to the most recent month end, SEC 30-day yield information, any sales charges, maximum sales charges, loads, fees, total annual operating expense ratio, gross of any fee waivers or expense reimbursements as stated in the fee table contact Baird directly at 866-442-2473 or visit the fund’s webpage here . Investment minimum for the institutional class is $25,000.

Investors should consider the investment objectives, risks, charges and expenses of each fund carefully before investing. This and other information is found in the prospectus and summary prospectus. For a prospectus or summary prospectus, contact Baird directly at 866-442-2473 or contact your Financial Advisor.