Tisch Sees Rare Opportunity for Munis as Funds Dump BondsNoah Buhayar and Brian Chappatta
Loews Corp. Chief Executive Officer James Tisch said now is the time to buy municipal bonds after mutual fund investors sold the securities for 25 straight weeks.
“The returns are truly, truly extraordinary in the municipal bond market,” Tisch said in an interview today with Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “Market Makers” program. “This is one of those rare opportunities where munis are so attractive.”
Tax-exempt revenue bonds rated AA, two steps below the top, and maturing in 30 years yield about 4.6 percent, according to data compiled by Bloomberg. That’s up from as low as 3.04 percent in January. The $3.7 trillion municipal market lost 2.4 percent this year, according to Standard & Poor’s data.
Loews’s insurance subsidiary CNA Financial Corp. said in July that it was buying state and local-government debt for its $46 billion investment portfolio. The strategy was a reversal for Tisch, who said earlier this year that interest rates were so low that bonds were competing in an “ugly contest.”
Outflows from mutual funds helped change that, he said today. Investors turned to stocks on speculation that the Federal Reserve will curb its bond-buying program, leading to higher interest rates. Withdrawals increased after Detroit in July filed the biggest U.S. municipal bankruptcy.
Individuals have pulled almost $52 billion from muni mutual funds this year, Lipper US Fund Flows data show. Over the same period in 2012, investors poured about $47 billion into the asset class, Lipper data show, helping push municipal yields to the lowest since the 1960s in December.
“Mutual funds had withdrawals, so they became forced sellers,” Tisch said. “Munis had to get to truly extraordinary yields in order to attract that capital.”
Loews has subsidiaries in the commercial-insurance, hotel and energy industries. The New York-based company has advanced 18 percent this year, compared with the S&P 500 Index’s 26 percent rally.
Climbing equity markets mean there are fewer opportunities for stock investors, Tisch said. Loews has been finding value by reinvesting in its subsidiaries.
“Stocks have really moved up,” he said. “But buying real income-earning assets can actually be attractive, even now.”
Tisch highlighted increasing revenue per available room at Loews’s hotel business as an example of how the U.S. economy is coming back after the longest recession since the 1930s. The energy industry is also driving expansion, he said.
“The economy is going to grow more than it has grown,” Tisch said. “My fearless forecast for next year is that we’re going to have, say, 3 percent growth.”
That compares with the median estimate of 2.6 percent for 2014 in a Bloomberg survey of analysts. Their forecast for this year is 1.7 percent.