Q: Can you give a brief overview of the company?

A: Abner, Herrman & Brock, which was founded in 1981 by Howard Abner, is an independent investment management firm based in Jersey City, New Jersey. The firm manages customized separately managed portfolios and currently has $850 million under management. We are a 100% employee-owned company.

Since the early 1990s we have been more active in managing municipal bond portfolios, and we launched our municipal bond composite in 1993.

Q: What core principles guide your investment philosophy?

A: We are unique in our investment philosophy in that we customize portfolios to achieve the client’s objective. We can manage a state-specific portfolio in any state in the country, national or any combination. We also give our clients direct opportunities to interact with our investment professionals via conference calls or client meetings.

What is more, even though we are more customized and offer more access than others, we also believe in doing this at an attractive fee level so that the client can achieve a strong net total return. We think it is important to keep fees relatively low, so that our clients can still generate enough income from their portfolio given today’s lower interest rate environment.

With regard to our philosophy, we believe investors in municipal bonds are typically looking for preservation of principal and a risk-adjusted rate of return. Because of that we manage these portfolios as high quality as possible relative to other investment grade managers.

Q: How do you educate your clients?

A: We have a diverse client base that come to us either directly or through an intermediary such as a financial advisor. We work closely with our clients and their intermediaries to keep them abreast of current events in the municipal bond market environment.

Q: What is your investment process?

A: We have a very disciplined process. Every municipal bond that we buy has an underlying credit rating of “A-/A3” or higher. We buy only general obligation or essential service revenue bonds.

We totally avoid another relatively large category of municipal bonds, often referred to as non-essential service revenue. Generally, there are four areas of non-essential service revenue bonds we avoid regardless of the credit quality. Those are municipal bonds in the healthcare sector, housing related, airport, and sports and convention centers.

We are an intermediate maturity manager; however we customize duration to meet any of our clients’ needs. We further believe very strongly in diversification. After utilizing our investment screens to narrow down the universe of the municipal bonds, we proceed with identifying individual issues.

On a daily basis, we get inventory screens from dealers that we regularly trade or communicate with. They help with the screening process to provide us with inventory that looks attractive relative to the market while also meeting our minimum quality standards.

Once we locate a bond that is attractive relative to the market, we conduct the credit research on that specific municipality. Some of the key factors that we focus on when we are reviewing financials of a municipality are the operating surplus or deficit that the municipality has, the size of the general fund of each municipality, and any noticeable trends in these areas. We look for any red flags that the rating agencies have not picked up, as we want to avoid possible downgrades to any municipality.
In addition to that phase of the process, we have a number of resources that we utilize. We are subscribers to a number of professional municipal bond research sources that give us additional information and data on many of the areas of the country that we are focusing on.

Our knowledge and experience with those particular municipalities certainly help us and we also tap into sell-side municipal credit analysts as well as bond dealers that we have relationships with. Since they often have traders and analysts all around the country, we often get a bird’s-eye view from one of their analysts who is located very close to the municipality we may be considering for purchase.

To sum up, there are a lot of aspects that we take into consideration before we feel comfortable making a purchase of a municipal bond.

Q: What are the various steps in your research process?

A: Our Investment Policy Committee focuses on the top-down macro issues on a national level. During our meetings we look at different parts of the country that we want to have more exposure to or ones that we want to avoid. Again, we have to marry that with the inventory that is available at the given time in order to focus on what we can actually purchase for our clients.

We have the technology and screening in place to help us monitor the existing holdings by looking at any change in the credit quality, whether it is deteriorating or improving, or has recently been changed by one of the rating agencies. Thus, we continually monitor the credit quality and financial statements of all the municipalities that we own.