About Gulfstream

 

Gulfstream Opportunity

Investor Composition

Individual investors directly or indirectly own ~66% of the municipal market1. In periods of market stress individual investors tend to disregard price in favor of reducing risk.

Asset Class Fragmentation

The municipal universe has a ~$4.0 trillion market value with over 50,000 issuers2 and 945,000 outstanding CUSIPs. Municipalities issue on average $375B of new bonds every year producing roughly 150,000 new CUSIPs. Secondary trading tends to disperse these bonds amongst many holders, breeding an active but often undervalued “odd lot” market.

Inefficient Market

  • Over 85% of new issue municipal bonds have call features2. There are often durable barriers to refinancing existing municipal debt. Smaller issuers and larger issuers alike do not efficiently exercise the call options on their outstanding debt leaving investors to benefit.

  • Municipal market liquidity provided by the dealer community has been declining since the financial crisis due to prohibitive capital restrictions.

Credit Landscape

  • Defaults in municipals tend to be low relative to other asset classes.

  • Given the significant decline of bond insurance, the market weighting of “A” rated bonds has materially increased providing us with more opportunity to identify undervalued bonds.