Quality, I think, in the municipal bond market or any market and any asset class, for that matter, is very important. Knowing what you own and understanding what you own is very important. And this has been made much more complex and much more difficult over the last five or six years, since the credit crisis. Remember, over half of the market was backed by insurance. That's more or less gone. So you have to look at the underlying entity. The outcome of Detroit, Jefferson County, Puerto Rico, I think all that — those decisions about knowing, understanding what you own, the complexity of credit has been made much more difficult.
So while quality's important and I think there is also a certain element of adding risk to your portfolio, but being comfortable with risk and knowing the risks. For instance, high yield. High yield comes with certain risks of default, risks of nonpayment, but you're also getting, in the meantime, a high level of income. Take Puerto Rico, for instance. Puerto Rico is now rated in the junk bond category, but they're still paying a coupon. So there's a high level of income. In many cases, it's double and triple tax exempt. So investors want to own that. They want to be able to maximize their income. But you have to be comfortable with the risk. The liquidity could be compromised. You might see more price volatility.
And we still think that Puerto Rico has a bad outcome. Even though they bought some time from this recent bond deal, we do think that ultimately the endgame for Puerto Rico will be some type of restructuring in the next one to two years. You have to be comfortable with that as you make investments in high-yield Puerto Rico and other types of names like that. We still think from a risk/reward perspective the A-rated part of the market is still the strongest.
So we think that's the way to look at your portfolio is what risks are you comfortable with but know and understand those risks and what you own.
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