| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 4.83% | 2.37% | 1.91% |
The Touchstone Core Municipal Bond Fund underperformed its benchmark during Q2 2026, returning 2.37% versus 2.50% for the Bloomberg Municipal Bond Index. The municipal bond market rebounded during the quarter as elevated yields, supportive technical conditions, and resilient investor demand offset concerns surrounding record issuance and moderating economic growth. The Fund's barbell yield curve positioning contributed positively as the municipal yield curve experienced significant flattening between 10- and 30-year maturities. Top contributors included Eagle River Colorado Water & Sanitation District, Will County Illinois, and Upland Indiana Economic Development Revenue bonds, which benefited from favorable yield curve dynamics. Detractors included Black Belt Energy Gas District Alabama and Westmoreland County Pennsylvania Municipal Authority, reflecting weakness in higher-coupon prepaid gas bonds and widening hospital-sector credit spreads. The Fund maintains a modestly long-duration posture with a structural overweight to select single-A rated credits. The outlook for the remainder of 2026 remains constructive, supported by strong municipal fundamentals, seasonal reinvestment demand, and continued fund inflows, though valuations are considerably richer following the second-quarter rally.
The Fund seeks to exploit market inefficiencies in the municipal bond market using a proprietary income, price, and volatility framework, constructing portfolios that generate consistent tax-free income by capturing diversified sources of credit, liquidity, and term premiums while controlling price sensitivity through duration and yield curve positioning.
The outlook for the remainder of 2026 remains constructive. Municipal fundamentals remain strong, seasonal reinvestment demand is expected to remain supportive through much of the summer, and continued fund inflows should provide meaningful technical support. While municipal valuations are considerably richer following the second-quarter rally, attractive tax-exempt income, healthy credit conditions, and favorable technical factors continue to support the asset class. Future returns are likely to depend increasingly on coupon income, yield curve positioning, and active management as the municipal market becomes more differentiated and issuer-specific opportunities emerge.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 27 2026 | 2026 Q2 | - | Credit quality, duration, healthcare, municipal bonds, Prepaid Gas, Tax Free Income, yield curve | - | The Touchstone Core Municipal Bond Fund slightly underperformed its benchmark in Q2 2026, returning 2.37% as the municipal bond market rebounded from first-quarter weakness. The Fund's barbell yield curve positioning contributed positively amid significant curve flattening. Healthcare credit spreads widened while prepaid gas bonds showed relative weakness. The manager maintains a modestly long-duration posture with overweight to single-A credits, viewing the outlook as constructive despite richer valuations. |
| May 4 2026 | 2026 Q1 | - | credit, duration, Esg, fixed income, municipal bonds, yield curve | - | Municipal bond fund underperformed in Q1 2026 due to rate volatility and curve positioning challenges. Geopolitical tensions and Fed pause expectations drove yields higher across intermediate maturities. Fund maintains barbell structure and selective credit approach. Manager sees improved valuations post-selloff creating better risk/reward opportunities despite ongoing supply pressures and rate uncertainty. |
| Jan 31 2026 | 2025 Q4 | TOHAX, TOHCX, TOHIX, TOHYX | credit, duration, fixed income, municipal bonds, tax-exempt, yield curve | - | The fund underperformed due to its barbell strategy that avoided the strong-performing intermediate curve segment. Despite record municipal issuance, the market showed resilience with strong ETF and retail demand. Managers maintain a defensive posture targeting BBB credits and specific sectors while navigating policy uncertainty and elevated supply expectations for 2026. |
| Oct 31 2025 | 2025 Q3 | FBRX | CLO, credit, Fed, high yield, loans, rates, Spreads | - | Ares Credit Opportunities Fund maintains neutral positioning amid tight spreads but positions for Fed rate cuts through high yield bond overweight and duration extension. Increased single name dispersion creates credit selection opportunities while supportive macro backdrop and corporate fundamentals provide tailwinds. Focus remains on relative value within leveraged credit markets. |
| Aug 5 2025 | 2025 Q2 | - | credit spreads, duration, fixed income, liquidity, municipal bonds, Tax Free, yield curve | - | Municipal bonds underperformed in Q2 2025 amid supply pressures and fund outflows. The Fund maintained strategic positioning with prepaid gas overweight while rotating toward local GO credits. Credit spreads widened, hurting single A exposure, but security selection provided offsets. Duration stayed neutral with readiness to extend on yield increases. Manager remains cautiously optimistic on long-dated valuations despite ongoing volatility. |
| Mar 31 2025 | 2025 Q1 | - | California, Credit quality, duration, infrastructure, interest rates, municipal bonds, Utilities | - | Municipal bond fund underperformed in Q1 2025 due to steeper yield curve impact on barbell strategy, though single-A credit positioning and California underweight provided partial offset. Manager maintains cautious sector-neutral stance given high valuations, focusing on prepaid gas bonds and tactical duration management. Expects volatile environment ahead with performance dependent on policy outcomes and Fed decisions. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
Municipal BondsThe municipal bond market rebounded during Q2 2026 as elevated yields, supportive technical conditions, and resilient investor demand offset concerns surrounding record issuance. The market demonstrated a notable ability to absorb record issuance throughout the quarter, with strong demand from mutual funds, ETFs, separately managed accounts, and seasonal reinvestment cash flows supporting market performance. Municipal credit fundamentals remained healthy as state and local governments generally maintained strong reserve balances, stable revenue collections, and disciplined fiscal management. |
Municipal Bonds Tax-Free Income Credit Quality Issuance Yield Curve |
HealthcareHealthcare remained one of the market's most closely monitored sectors as investors evaluated reimbursement risk, Medicaid exposure, labor costs, and issuer-specific operating performance. Hospital-sector credit spreads widened during the quarter, with positions like Westmoreland County Pennsylvania Municipal Authority detracting from performance as hospital-sector credit spreads widened. |
Healthcare Hospitals Credit Spreads Reimbursement Risk | |
EnergyThe prepaid gas sector continued to present attractive relative-value opportunities due to growing issuance, structural complexity, and expanding participation by non-traditional counterparties. However, higher-coupon prepaid gas bonds reflected relative weakness during the quarter, with holdings like Black Belt Energy Gas District and Energy Southeast Alabama Cooperative District detracting from performance. |
Prepaid Gas Energy Relative Value | |
RatesFollowing the significant repricing experienced during the first quarter, higher starting yields created one of the most attractive entry points in several years. As interest rates stabilized and reinvestment demand accelerated, municipal bonds recovered much of their earlier weakness. Municipal yields declined across the curve, with the largest yield declines occurring in longer maturities. The Fund's barbell yield curve positioning contributed positively as the municipal yield curve experienced significant flattening between 10- and 30-year maturities during the quarter. |
Interest Rates Yield Curve Duration Yields | |
| 2026 Q1 |
RatesThe Fed maintained a cautious hold steady stance with market expectations shifting toward a prolonged pause in rate cuts. The municipal market experienced significant curve repricing with 10-year yields rising 35 basis points to 3.08% and 30-year yields rising 31 basis points to 4.50%. |
Interest Rates Federal Reserve Yield Curve |
InflationInflation expectations moved modestly higher during the quarter due to geopolitical tensions, particularly the Iran conflict, which introduced near-term inflationary risks. However, underlying pressures from wages and housing remained contained. |
Inflation Expectations Geopolitical Risk Iran | |
LiquidityTechnical conditions were mixed with strong January reinvestment demand that faded amid heavy supply and rising rate volatility. Net supply is projected to increase meaningfully over coming months, which may create periods of volatility. |
Municipal Supply Reinvestment Technical Conditions | |
| 2025 Q4 |
Live SportsManager sees significant value in sports teams and entertainment assets, recommending Atlanta Braves Holdings, Madison Square Garden Sports, Manchester United, and Rogers Communications for their sports assets. Believes sports teams are hot and increasingly interesting to institutional investors with substantial upside potential. |
Sports Teams Entertainment Media Rights Valuation |
MediaRecommends Fox for its sports broadcasting rights and Versant Media Group following its spinoff from Comcast. Notes strong advertising market for live sports and news, with Fox having low leverage and World Cup broadcasting rights as catalysts. |
Broadcasting Advertising Content Spinoffs | |
Natural GasBullish on National Fuel Gas due to its substantial mineral ownership in Appalachian Basin and strategic location near population centers. Believes gas reserves are unappreciated and company could earn significantly higher per share in coming years. |
Utilities Energy Infrastructure Reserves Appalachian | |
AIAcknowledges AI is here and accelerating with profound changes to economy and society, but warns it will disappoint investors at some point. Compares to late 1990s tech boom with multiple speculative solutions and potential for significant market volatility. |
Technology Disruption Speculation Volatility | |
GoldNotes gold expert Caesar Bryan's fund was up 167% last year. Explains gold demand from Chinese government and Dubai investors seeking store of value, with governments having trust in gold for millennia. |
Precious Metals Store of Value Central Banks Currency | |
| 2025 Q3 |
Credit StressSingle name dispersion has increased, particularly in names with negative headlines, as evidenced by auto supplier First Brands declining 60 points before filing for bankruptcy. The manager believes value-add from credit selection and avoidance will increase in the months ahead given tight spreads and little room for error. |
Credit Selection Dispersion Bankruptcy Spreads Default |
RatesThe Fed cut rates in September for the first time since December 2024, viewed as a risk management measure with further reductions expected before year-end. The Fund's duration overweight is expected to prove beneficial as rates move lower, while syndicated loans were negatively impacted by rate expectations. |
Fed Rate Cuts Duration Monetary Policy Yields | |
| 2025 Q2 |
Credit StressCredit spreads widened modestly across all categories, reflecting investor caution due to historically tight valuations. The Fund's deliberate overweight to single A credits detracted from performance as credit spreads widened, though strategic selection in security-specific opportunities helped offset negative impacts. |
Credit Spreads Single A Valuations Risk Premium Credit Quality |
LiquidityMunicipal bond markets faced significant challenges with periodic and unpredictable fund outflows and ETF liquidations exacerbating negative returns. Elevated issuance levels anticipated to exceed $300 billion year-to-date further strained the market as retail investors and funds showed cautious demand. |
Fund Outflows ETF Liquidations Issuance Retail Demand Market Strain | |
RatesMunicipal AAA General Obligation yields showed varied changes with significant curve steepening evident. Front-end yields marginally decreased while the long-end notably increased, with 30-year yields rising by 26 basis points. The Fund stands ready to extend duration if yields see a meaningful upward move, guided by a neutral outlook around a 4.30% 10-year yield. |
Yield Curve Duration Interest Rates Steepening Long End | |
| 2025 Q1 |
Infrastructure SpendingLos Angeles faces immense costs for rebuilding and recovery from devastating wildfires, requiring significant investments in infrastructure repair, reforestation, and housing development. The city must also consider implementing more robust fire prevention and climate adaptation strategies to mitigate future risks. Investment in fire-resistant infrastructure, improved emergency response systems, and sustainable urban planning are crucial for the city's fiscal policy adaptation. |
Infrastructure Rebuilding Fire Prevention Climate Adaptation Emergency Response |
Credit StressMunicipal bond holders have felt repercussions from wildfires as the city's financial burdens increase, with credit ratings potentially being downgraded due to heightened risk and uncertainty. This leads to higher interest rates on future bonds and decreased value for current bondholders. In extreme cases, the city might need to restructure its debt, further impacting bondholders. |
Credit Ratings Municipal Bonds Debt Restructuring Financial Burden Risk Assessment | |
RatesThe primary influence on market sentiment and performance remained ongoing fluctuations in interest rates, with the Fed signaling possibility of a rate cut later in 2025 but maintaining a patient stance. Yield curve dynamics shifted notably with continued volatility leading to a steeper curve, contributing to bifurcation in returns across maturities. Municipal yields ended the first quarter with yields lower by only several basis points. |
Interest Rates Federal Reserve Yield Curve Rate Cuts Volatility |
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