First Eagle Investments money manager John Miller — Bloomberg
NEW YORK: It’s been a banner year for high-yield municipal bonds, and in particular the category’s star money manager, John Miller, who joined First Eagle Investments in January after nearly three decades at Nuveen.
Investors have plowed almost US$4.4bil into his First Eagle High Yield Municipal Fund this year through November, or almost a third of the cash that they added to riskier muni-bond funds, according to Morningstar Direct data.
The open-end fund’s 11.4% return for 2024 is also better than all of its peers, data compiled by Bloomberg show, and superior to the 5.9% gain for the Bloomberg Muni High-Yield Index.
“The fund is certainly announcing its arrival in the high-yield space with a splash,” said Eric Kazatsky, senior US municipal strategist at Bloomberg Intelligence.
“Its returns this year really speak volumes about the ability to replicate a model that was so successful for so long somewhere completely different.”
Miller, 57, left his former employer in 2023, after building up what is still the largest junk muni fund, Nuveen’s US$15.8bil high-yield muni fund.
He departed Nuveen after the asset manager settled a years-long legal battle with Preston Hollow Community Capital, a lender that accused Miller of trying to use his dominant position in the high-yield muni market to hurts its smaller rival.
The Nuveen fund, meanwhile, had about US$731mil in outflows this year through November, according to Morningstar, and its 4.2% return has left it trailing most peers and the muni high-yield index.
A spokesperson for Nuveen pointed out that the firm oversees almost US$200bil across all its muni offerings and received US$6bil of net flows across various products this year through November.
The spokesperson also referenced that Nuveen’s Enhanced High-Yield Municipal Bond Fund – a closed-end product – has returned 11.4% since the start of the year.
Miller started his new job during an extended period of strength in riskier munis.
They’re beating investment-grade state and local-government debt for the second year in a row, buoyed by demand for extra yield and solid economic growth that has helped keep down defaults.
He attributed the new fund’s outperformance to a decision to underweight tobacco bonds, securities backed by payments under a 1998 national tobacco settlement with US states, and debt issued by Puerto Rico. These two large segments of the high-yield muni market have trailed the index this year.
Tobacco bonds are flat and debt issued by Puerto Rico, the US commonwealth that exited bankruptcy in 2022, has returned 3.2%.
“Those two sectors really rallied in November and December of last year before we were operational,” Miller said in a video interview last week. “We didn’t look at what’s already run up a lot.”
Both tobacco bonds and Puerto Rico obligations have underlying credit weaknesses too, Miller said.
Cigarette consumption has declined as former smokers turn to vaping or nicotine pouches. Shipments by Marlboro maker Philip Morris International are down about a third from 2012, according to the company.
Puerto Rico, meanwhile, has been hit by severe hurricanes, which can cripple its fragile electric grid and hamstring its economy. “I would say the credit concerns are being somewhat ignored by the marketplace,” Miller said.
Instead, Miller’s fund bought securities for real estate developments in Atlanta and Miami and beaten-down sectors like senior living. — Bloomberg
