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Hi -- new to this board!

I currently have a personal financial manager at a major brokerage managing my bond portfolio, which is made up of tax-free muni bonds.

I have been successfully managing my own stock portfolio for several years and am weighing my options for also taking over my bond portfolio in order to avoid the brokerage fees, which are currently .5% of my portfolio value annually. So my most fundamental question is whether I can hope to match my portfolio manager's performance by within .5% -- in other words, does his superior experience, and access to new bond issues not available on the secondary market warrant this .5% fee.

Obviously, measuring his skills and my own likely acumen is hard to quantify -- and it does seem to me that bonds are more difficult to manage than stocks? -- but let's say I turn out to be a decent bond investor.

My question: to what extent does the professional manager's access to the primary market (is that the right term? I have in mind the brokerage participating in the float of new bond issues) constitute an advantage that helps to "earn" that .5% fee?

1)Is he able to get better interest rates on bonds for me because he has access to these offerings, where I would have access only to the secondary market?


2) Is there also a negative here, in the sense that he needs to get these bond issues *sold* and so he may be putting me in these bonds that his brokerage is floating from time to time, instead of getting me a better deal on the secondary market? If so, this would seem an additional reason I'd be better off doing it myself . . .

Comments and related observations about the pros and cons of enlisting (and paying for) such a manager are appreciated.

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No. of Recommendations: 2


With the right broker(s) you have virtually the same access to the market your manager does. If he/she is telling you different they are bending the truth to fit their purposes. Public debt is public debt. On occasion a fund has access to a private debt offering because they have the liquidity and the balance sheet to make the deal. Because they are a private offering not everyone has access to them. In the case of muni bonds in particular I know of no private offerings. That tends to lead to smoke filled room politics that gets drug out into the light and politicians publicly flogged.

Corporate bonds are not any different to analyze than corporate equity. The fundamentals of the company are the same. Often we can buy the debt of a company when we would not want to touch the equity because the risk/reward works for the debt but not the equity.

It really is a about skill set and time. If you are willing to invest the time the average investor is capable of average results. If your manager is average and charging you .5% and if you spin up to average competency you can save your self .5%.

With all that said. If munis are what you are interested in they take above average time and effort unless you are only going to buy State bonds. State budgets are a bit easier to get a hold of and yanking the chain of your local Rep or Senator can get their staff to send you harder to find data. Munis ratings also stand on two possible sets of legs; the municipality's own rating or the rating of the firm insuring the bond. It is good to know which is which. If you are buying a Jamestown NY bond with a rating of X which is actually the rating of the insurer then you need to first research Jamestown and then dig up data on the insurer many of which are not publicly traded but they often sell debt.

It is not evil to part out work that we do not have time or talent for and we need to watch our costs.

Obviously, measuring his skills and my own likely acumen is hard to quantify

There may be an index to benchmark him/her against. The other way would be to put together a basket of mutual funds that deal in the same bonds he does and compare apples to apples.

Your performance in the beginning would be spotty. Until you get over the learning curve hump you have to take your lumps. How fast you pick up the skills of a particular area of bonds will depend on your time, effort and talent.

If you enjoy spending time doing these types of things there are rewards. If you enjoy the hobby and you never exceed average you save .5% and have a new hobby. If you are slightly above average or better who knows you could make an extra .5% or 1% and you have a new hobby. If its tedious, annoying, frustrating and research weekends create opportunities for divorce lawyers pay the .5%.


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