Breckinridge Intermediate Municipal Strategy
This separately managed account (SMA) offers professional management of individual investment-grade1 municipal bonds.
FAQs: Breckinridge Intermediate Municipal Separately Managed Account
How can this strategy help me meet my goals?
Investing in municipal bonds can be a great way for investors in high tax brackets to generate federally tax-free interest income.* Municipal bonds can also help insulate your portfolio against market volatility, and tend to have lower default risk than corporate bonds. Although this powerful combination makes municipal bonds appealing, many investors find it challenging to navigate the large and fragmented municipal market.
Our professionally managed account offers investors a diversified portfolio of high-quality bonds, selected to generate federally tax-exempt interest income, while seeking to limit risk to principal. Offering direct ownership of securities enables investors to have transparency into the bonds the manager has selected for their individual account.
Who manages my money?
Strategic Advisers, a Fidelity company, and Breckinridge Capital Advisors, Inc. will work together to provide comprehensive investment services for this strategy.
Breckinridge Capital Advisors is a fixed income manager specializing in the municipal bond market. Exclusive focus on bonds allows them to provide investors with deeper credit research, broader access to available bonds and potentially more efficient pricing and trading. Their careful analysis of the market enables them to build bond portfolios that include a range of issuers, regions, sectors and maturities to ensure diversification and help limit risk. Unlike other firms, Breckinridge does not hold any bond inventory, so investment decisions are not influenced by internal interests. They buy bonds solely for placement in client accounts.
Strategic Advisers, Inc. will oversee Breckinridge activities to help ensure your portfolio meets the agreed upon investment guidelines.
What kind of investments can I expect in my account?
Your portfolio will contain a significant portion of bonds that have an S&P credit rating of AA or higher at time of purchase.
Municipal bonds are debt typically issued by cities, towns or state governments who use the money for public projects like building schools, highways, hospitals, etc. (When you buy a municipal bond from the issuer, you are lending money to a state or local government for a set time—with the promise of a return of your initial investment—plus ongoing tax-free interest payments.)
How are the bonds chosen for my account?
Breckinridge will select all securities for your account. Their research team assesses risk for each proposed bond, using national credit ratings and their own proprietary analysis. This proprietary analysis includes investment quality, price, default, and call and liquidity risk. The team focuses on selecting top-rated securities in an effort to limit risk to your original investment, and with the goal of holding them to maturity to generate a predictable income stream.
Each account may consist of a variety of issuers, geographies, sectors, maturities, etc., to help ensure it is not concentrated in one area. Your account will align with your personal tax situation, your comfort with risk and your cash flow needs.
Can I choose my own investments?
Breckinridge will select all securities for your account. They will make every effort to include any investment grade1 municipal bonds2 you currently own, provided they meet the selection criteria and overall portfolio construction.
Can I request that the manager only buy bonds issued within the state in which I pay taxes?
The national portfolio can hold bonds issued within any of the 50 states. You can choose a state-preference option if the state in which you are taxed is CA, MA, MD, NJ, NY, PA or VA. Choosing this option will bias your account towards bonds issued within your state. (With the state-preference option, state tax-exempt interest is emphasized over national diversification.)
Can I add funds to my account?
Yes, you can add funds to your account. Funds will remain in cash until there is enough to buy additional bonds.
Can I withdraw funds from my account?
Yes, there are several ways that you can access your funds, including automatic interest income withdrawals.
What is the account minimum?
The minimum funding amount is $500,000. Accounts can be funded with a check, bank wire, an exchange of assets from an existing Fidelity account, or a transfer of eligible assets from an account at another institution.
How much does it cost?
The annual advisory fee ranges from 0.35% to 0.40% based on account balance.4
* As with any investment, your investment through the Breckinridge Intermediate Municipal Strategy could have tax consequences for you. The Breckinridge Municipal Strategy seeks to earn income exempt from federal income tax. Income exempt from federal income tax may be subject to state or local tax. A portion of the income you receive may be subject to federal and state income taxes and may also be subject to the federal alternative minimum tax. You may also receive taxable income attributable to the sale of municipal bonds, because certain income, including short-term capital gains and gains on the sale of bonds characterized as market discount, are generally taxable as ordinary income, while long-term capital gains are typically taxable as capital gains. The municipal market can be affected by adverse tax, legislative, or political changes and the financial condition of the issuers of municipal securities. Such changes can affect the tax treatment of municipal bonds. Investing in municipal bonds for the purpose of generating tax-exempt income may not be appropriate for investors in all tax brackets or account types. Tax laws are subject to change and the preferential tax treatment of municipal bond interest income may be removed or phased out for investors at certain income levels. You should consult your tax adviser for questions pertaining to your specific situation.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
It is important to note that, while municipal bonds and U.S. Treasury bonds offer appealing tax advantages, these breaks come at a cost. Generally speaking, the higher your income tax bracket, the more advantageous the after-tax yield of municipal bonds may be for you. Tax-free income can be enticing to high-income investors, but tax-free municipal bonds offer a lower coupon rate than equivalent taxable bonds. Many corporate bonds, for example, offer higher coupon rates to compensate for the fact that the interest they pay is subject to income tax at a local, state, and federal level. When considering different bonds, the tax-equivalent yield is just one of a number of factors to consider (others being, for example, quality rating and term to maturity). Of course, as with any investment, your decision should take into account your personal investment objectives, needs, comfort with risk, and time horizon. U.S. Treasury bonds and municipal bonds may be susceptible to some of the following risks:
Lower yields - U.S. Treasury bonds typically pay less interest than other bonds in exchange for lower default or credit risk.
Interest rate risk - U.S. Treasury bonds and municipal bonds may be susceptible to fluctuations in interest rates, with the degree of volatility increasing with the amount of time until maturity. As rates rise, prices will typically decline.
Call risk - Some U.S. Treasury and municipal bonds carry call provisions that allow the bonds to be retired prior to stated maturity. This typically occurs when rates fall.
Inflation risk - With relatively low yields, income produced by U.S. Treasury and municipal bonds may be lower than the rate of inflation. This does not apply to Treasury Inflation-Protected Securities (TIPS), which are inflation protected.
Credit or default risk - Investors need to be aware that all bonds have the risk of default. Investors should monitor current events, as well as the ratio of national debt to gross domestic product, Treasury yields, credit ratings, and the weaknesses of the dollar for signs that default risk may be rising.
Additionally, municipal bonds can carry the following risk: The municipal market can be affected by adverse tax, legislative, or political changes, and the financial condition of the issuers of municipal securities. In comparison, U.S. Treasury bonds are backed by the full faith and credit of the U.S. government. Interest income generated by U.S. territories is generally exempt from federal and state income taxes. Interest income generated by U.S. Treasury bonds and certain securities issued by possessions, agencies, and instrumentalities is generally exempt from state income tax but is generally subject to federal income and alternative minimum taxes and may be subject to state alternative minimum taxes.
Please see the Program Fundamentals for more information about the material investment risks applicable to PAS accounts.
Strategic Advisers, Inc., and Breckinridge Capital Advisors, Inc., are independent entities and are not legally affiliated.
Brokerage services are provided by Fidelity Brokerage Services LLC, 900 Salem Street, Smithfield, RI 02917, a Fidelity Investments company and a member of NYSE and SIPC. Custody and other services are provided by National Financial Services LLC, a Fidelity Investments company and a member of NYSE and SIPC.