A Reflection on Our Recent Webinar
By Robert Lopez, Associate Portfolio Manager at HoyleCohen
In a recent webinar, HoyleCohen Associate Portfolio Manager Robert Lopez interviewed Arch Peregoff and Stefan Haberer – Fund Managers of Seabird Financial (“Seabird”). Arch and Stefan provided their insight and expertise on the municipal bond market, investment philosophy, portfolio positioning, and what they have learned from managing client portfolios during a pandemic.
While the pandemic has driven market volatility and dislocation, these are the types of market environments in which Seabird excels. Each investment opportunity and specific borrower is reviewed and analyzed on a case-by-case basis to determine if principal will be returned when the bond matures. Seabird maintains that municipal bonds remain a very safe asset class next to US treasuries and other government securities.
When asked how they have been able to deliver a +4.0% yield for client portfolios even in a low-interest environment, they attributed it to their opportunistic approach, willingness to buy odd lot positions (usually sold at a discount), dedication to diligent and focused research, and the firm’s nimble size that allows them to take advantage of short-term inefficiency in the market. Cumulatively, Seabird has been managing municipal bond portfolios for over 50 years and have done extensive research on numerous issuers, offering them a valuable database of information which allows them to be efficient with their time. As a result they are able to quickly determine which issuers they are not interested in, allowing them to be diligent and focused on the time spent during their credit research process.
The firm also takes advantage of callable bonds that are paying above market coupons. These are issues that a municipality would benefit from refinancing but often haven’t. There are several factors that contribute to this trend, but usually it’s because these municipalities are smaller and don’t have a full-time finance team that can opportunistically take advantage of low-interest rates. In order to call and refinance a bond, these smaller municipalities typically must hold a board meeting and dedicate time that may have competing priorities. Additionally, small outstanding balances may not warrant the refinancing costs to do so. Seabird takes advantage of this opportunity and is able to capture additional yield for client portfolios.
Seabird’s exposure to Puerto Rico was also discussed. The Fund Managers continue to have confidence in this investment strategy as a meaningful allocation for client portfolios. They explained that they don’t consider their exposure as being “Puerto Rico,” but rather exposure to the insurance agencies that are backing these Puerto Rico bonds. The insurance agencies are currently rated as strong investment grade credits, with one of the largest positions, Assured Guaranty, rated as “AA” by S&P. By investing in Puerto Rico bonds, Seabird is attempting to deliver higher tax-exempt yield than that available through other municipal bonds, with the additional protection of an insurer that has committed to pay interest and principal if the bond issuer is unable to do so.
Our conversation concluded with a discussion of what Seabird has learned through managing client portfolios during a pandemic. They noted that no matter where interest rates go, opportunistic bond supply does exist and can be identified through diligent management. They have learned to act quickly, as often when opportunities do present themselves in a low rate market with lots of cash looking for yield, they don’t stay around for long.
For a full recording of the Webinar please click here or on the play button below.
The information above is for illustrative purposes only and nothing herein should be interpreted as investment advice. It should not be assumed that future performance of any specific investment or investment strategy will be profitable. All information contained herein is accurate to the best of our knowledge and is based on our reliance on materials provided directly by the investment manager. All investments carry the risk of loss, including the permanent loss of principal. Past performance is not a guarantee of future results.
Arch Peregoff: Founder & President, Seabird Financial
Arch Peregoff founded Seabird in 2016 and currently oversees the firm’s investment strategies with over 32 years of investment experience. He began his career in 1988 at the Riderwood Group in Baltimore, MD where he served on the Board of Directors before moving to San Diego to pursue a career independently managing client portfolios. He founded Seabird on the philosophy that a culture of independent thought can deliver above average results for investors. Arch graduated from the University of Maryland with a B.A. in economics.
Stefan Haberer: Senior Investment Strategist, Seabird Financial
Stefan Haberer joined Seabird Financial in 2020 as a Senior Investment Strategist and currently co-manages the firm’s municipal bond portfolios. Previously, Stefan worked as a Portfolio Manager for Perot Investments, a family office where he was responsible for all municipal bond-related investments. Stefan’s experience also includes serving as a Senior Vice President and Director of Research for W.H. Mell Associates, Inc. and Chief Investment Officer and Portfolio Manager for Gulfstream Capital Management, LLC, an affiliated Registered Investment Advisor. Stefan has extensive expertise in the investment industry, having worked for over 30 years on the buy-side, sell-side and at a rating agency. Stefan obtained his BBA in Finance from Baruch College in 1988 and his MBA in Finance from Manhattan College in 1992.
Robert Lopez. MSF, CAIA: Associate Portfolio Manager, HoyleCohen
Robert Lopez serves as an Associate Portfolio Manager in HoyleCohen’s Investment Department. Robert is an active member of the firm’s Investment Committee often leading meetings and investment discussions, and plays an integral role in the future growth and development of investment management strategies of HC. Robert also assists in diligence reviews, core model research and drafting investment related collateral and client communications, as well as maintaining internal records. Robert’s role also sees him working closely with Advisory teams to provide portfolio management recommendations.
Robert holds a Bachelor’s from the University of California Los Angeles, a Master’s from Northeastern University and a Chartered Alternative Investment Analyst (CAIA) designation. Active in the community, Robert serves on the board as Treasurer of the UCLA-SD Alumni Network.