| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 4.8% | -0.46% | -0.46% |
The Touchstone Core Municipal Bond Fund underperformed its benchmark during Q1 2026, declining 0.46% versus the Bloomberg Municipal Bond Index's 0.18% decline. Performance was primarily driven by curve positioning and security selection within a rate-driven environment where intermediate maturities experienced the most pronounced yield increases. The fund's barbell structure, emphasizing short- and long-duration exposures, provided some offset as front-end yields declined and the long end remained comparatively stable. The municipal market faced headwinds from geopolitical tensions, particularly the Iran conflict, which introduced inflationary risks and contributed to rate volatility. The Fed maintained a cautious stance with market expectations shifting toward prolonged pause in rate cuts. Technical conditions were mixed with strong January reinvestment demand fading amid heavy supply. Looking ahead, the manager expects the municipal market to remain fundamentally supported despite elevated issuance and rate volatility. Improved valuations following the sell-off present a more balanced risk/reward profile, with opportunities in BBB-rated credits and selective sectors.
The fund seeks to exploit market inefficiencies using a proprietary income, price and volatility framework while maintaining disciplined positioning through barbell structure and selective credit exposure in a rate-volatile environment.
The municipal market will remain fundamentally supported but increasingly influenced by supply dynamics, rate volatility, and shifting technical conditions. Valuations have improved following the first-quarter sell-off, with municipal-to-Treasury ratios moving closer to historical averages, presenting a more balanced risk/reward profile.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| 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 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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