Although he works in New York, it should come as no surprise that Jerry Samet - senior portfolio manager of Hong Kong-based HSBC Asset Management Americas Inc.'s New York Tax-Free Bond Fund - takes a global outlook to the municipal market.
"We tend to have a very global approach to things," he said. "And when you speak macroeconomics, it's not only domestic macroeconomic indicators that we're looking at, but we're looking at global macroeconomic indicators to give us an idea about how the flow of funds might be affected."
The key indicators Samet monitors are constantly shifting, due to the ever-changing economy. Also, he acknowledged that sector-specific portfolio managers might have a different focus.
For now, Samet is honing in on the manufacturing sector, and additionally, concentrating on consumer sentiment. Samet evaluates whether these areas will be stronger or weaker going forward, and tries to anticipate trends moving out three to six months at a time.
Globally, he looks to the currency markets and monitors where investors are putting their money.
While the municipal market has proved to be more stable than the volatile Treasury market, Samet has noticed some effects from the economic uncertainties.
"You can't keep your head in the sand, and you have to see that especially within the last year - and specifically the last six months - global events and global economics have really dictated the volatility of the market, which in turn funnels down to our market," Samet said.
The world market has had more influence on municipals in sectors that fund managers and arbitrage players participate in compared to retail and household investors that are picking up coupons, he said.
Samet pointed to the destabilized Asian and Russian markets that effectively prompted the Federal Reserve Board to cut interest rates.
"The Fed cuts were more of a function of what was happening globally, and even as a municipal portfolio manager, you have to get a grasp of where global economic indicators might be heading," he said.
Samet also watches the traditional employment figures, which have been pretty strong lately - including a market-moving 378,000 increase in non- farm payrolls Friday. However, he anticipates that will be tapering off a bit.
"We're pretty constructive on fixed-income markets in general, and in turn, we think the yield curve is going to steepen," he said. He added that while he believes municipals and Treasuries will both post lower yields, government bonds will outperform their tax-exempt brethren.
Although Samet and HSBC have a stake in considering non-domestic economic indicators, Samet has noticed a wider acceptance and practice of municipal market participants following the global economy.
"People look at things more from a global standpoint, and that happens in all markets - it's equities, currency markets, commodity markets - all these markets essentially are looking at things from a global vantage point. That's been a trend and that's happened essentially from globalization in general," Samet said.
