Perceptions Can Mask Muni Bargains

BOSTON (TheStreet) -- There is a temptation among municipal bond investors to be overly "big picture," rather than granular, when choosing plays.

Illustrating the point is how Michigan's municipal bond market is treated. Amid images of shuttered storefronts, idle factories and the ghost town aesthetic of Flint and Detroit, it is easy to be scared away from putting your money to work within its borders. That fear directs investors away from bargains, says Leon LaBrecque, managing partner and founder of LJPR, an independent wealth management firm in Troy, Mich., that manages more than $350 million in assets.

"Michigan Municipal bonds are being painted with a broad stroke while important and positive aspects of the bonds are going unnoticed," he says, stressing that it "is a very diverse state in geography and economy."

Municipalities still need money for infrastructure improvements such as roadwork and capital expenditures and must go to the market for that funding. That gives the advantage to buyers, analysts say.

"We are seeing fire-sale prices on some issues," he says. "In addition, we see that the lack of a central unified market presents opportunistic buying. We buy on the bid (wholesale) for our portfolios. The spreads tend to be pretty big now."

The lesson for investors, LaBrecque says, is to look beyond the headlines and suppress first-blush reactions.

Michigan has highly industrialized, relatively economically disadvantaged areas such as Detroit, but also booming areas such as Traverse City and Grand Rapids, he says.

"You've got some places that are just making money hand over fist. People are also not seeing Michigan as a huge agricultural state, or that it is not 100% based on the auto industry," he says. "Here's a little secret for you: Our auto industry is doing tremendously right now. Car and truck production in Michigan is up about 43% over last year and the highest growth in jobs in Michigan right now is manufacturing. We even have one client that makes fasteners, and the demand is so great they are exporting their products to China. Our death has been greatly exaggerated."

Although he urges proper due diligence before investing, LaBrecque thinks default fears are overstated.

"The amount of default is still at a historical level," he says. "There are conspicuous defaults, and everyone is waiting for the Bronx parking stadium authority to go down or looking at Harrisburg. But we don't see municipal bond defaults going through the roof. There will be way, way more bargains sitting out there."