From Lake Tahoe, Zephyr’s Adjusted Risk Podcast welcomes Eric Kazatsky, Client Portfolio Manager at MacKay Municipal Managers, an $85–$86B specialist in tax-exempt and taxable municipal strategies across ETFs, mutual funds, interval funds, and limited partnerships. The conversation covers today’s macro uncertainty—sticky inflation, rate direction, yield-curve shape, geopolitics—and why munis can help portfolios through low correlation, diversification, and tax-equivalent income potential. Kazatsky discusses a defensive posture using higher coupons, where MacKay sees relative value on the muni curve (about 17–22 years), how munis follow Treasuries directionally while facing distinct domestic fundamentals, and why taxable munis exist and can offer attractive spread and institutional-grade issuers. He also explains active vs. passive considerations in a market with many issuers and index gaps, and shares where to find MacKay’s research and updates online.

Learn how Zephyr can help you show the impact Municipal Bonds have on investment portfolios. Learn more about Zephyr here.

Learn more about MacKay Municipal Managers here.

00:00 Welcome to the Podcast

01:19 Meet Eric and MacKay

02:48 Munis in Real Life

03:30 Interval Funds Explained

04:32 Macro Backdrop and Rates

07:05 Best Spots on the Curve

08:15 Geopolitics and Muni Resilience

11:40 Taxable vs Tax Free Munis

13:45 Why Munis Get Overlooked

16:40 Interest Rate Volatility and Liquidity

18:25 Active vs Passive in Munis

21:36 How Advisors Should Use Munis

22:57 Where to Learn More

23:49 Final Thanks and Sign Off

Connect with Ryan Nauman:

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Ryan Nauman Market Strategist Zephyr:

Hello everyone and welcome to

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Zephyr's Adjusted Risk Podcast

from the shores of Lake Tahoe.

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Fixed income has been a staple in

investment portfolios however, the

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fixed income space is vast with

different asset classes to choose from.

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In fact, the fixed income space is a

lot larger than the equity space, so it

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can pose some challenges for building.

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Investment portfolios and incorporating

fixed income into those portfolios.

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My next guess is an industry expert

who is gonna talk about a fixed

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income asset class that is often

overlooked, but offers a lot of

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benefits to portfolio construction.

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But first, this episode is sponsored

by the award-winning Zephyr, which

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helps investment professionals make

more informed investment decisions.

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On behalf of their clients.

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Alright, enough for me.

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I've already talked enough.

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Let's go ahead and bring

on the star of the show.

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I'd like to give a very

warm welcome to Eric Kazaki.

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Eric is the client portfolio manager

at Mackay Municipal Managers.

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Eric.

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you so much for coming on the show.

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It's an honor to have you on really

excited about this conversation.

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Like I was telling you before,

I don't have many conversations,

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surprisingly on municipal, so

really looking forward to this one.

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Can you tell us a little bit more about

yourself and Mackay Municipal Managers?

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Eric Kazatsky Client Portfolio Manager MacKay Municipal Managers:

Absolutely first off thanks Ryan for

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having us on and we're always happy

to talk about municipal bonds It's our

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bread and butter kind municipal managers

$85 billion closing out on $86 billion

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manager solely in the tax exempt and

taxable immunity space so that really

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is our specialty We have a suite of

products that range from exchange traded

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funds on the active side mutual funds

again actively managed and then we have

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interval funds and limited partnerships

So all across the yield curve all across

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the credit spectrum you know we try and

provide a whole host of solutions as for

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myself I'll keep it really brief right

25 years in the muni bond landscape

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Too long if you talk to some people I

think what I love about municipal bonds

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is that I could drive anywhere with

my kids and point out projects that

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muni bonds have built whether they're

schools or libraries or hospitals

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or toll roads or bridges or stadiums

right It's all around us and I think

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that's what makes it super interesting

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Ryan: You know what, Eric?

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A couple things there.

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Thank you for that backdrop, but first

of all, with municipal bonds, I'm really

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glad you brought that up because and

we're gonna talk about it more in a

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little bit when you talk about investing,

it's hard to be like I invest in

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eric kazatsky: Yeah

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Ryan: What is that?

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What do I get for buying equity in

Apple or buying a bond in Apple,

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especially if you're teaching

kids how to invest, I'm big in the

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education, but if it's you know what?

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My money, I invested in that bond,

which helped build that stadium for

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that team, it's much more tangible.

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And we're gonna talk about that shortly.

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But another thing that

really caught my attention.

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With maka, you guys offer interval funds.

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Usually when we think of interval

funds, we're thinking of private credit.

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Is that what is wrapped up into

your interval funds or do you

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have municipals that are in

interval funds and that wrapper.

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eric kazatsky: Yeah no everything is

investment grade or high yield in the

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municipal space So no private credit no

BDCs anything like that in our interval

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funds specifically it's gonna lean more

towards investment grade and its nature

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And you know from a tax efficiency

standpoint you know we're trying to pass

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through losses make it as tax efficient

as possible and for investors in that

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fund they're getting those losses via

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it's an interesting vehicle you're seeing

more of a demand for it these days as

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people are you know demanding more tax

efficiency you know in my mind the best

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mousetrap is probably still the co-mingled

mutual fund products shift in their

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popularity as we go through time right

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Ryan: Yeah.

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Perfect.

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Thank you for that.

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It was just interesting

that you brought up.

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Of funds, and most people

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eric kazatsky: Yeah

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Ryan: interval funds with private credit,

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eric kazatsky: Absolutely

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Ryan: eric, we cannot have this

conversation about fixed income without

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talking about the macro environment.

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Lot to unpack there on the

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macro environment and the impact

it has on inflation rates, you

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eric kazatsky: Yeah

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Ryan: So let's start there.

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Investors are faced with

a lot of uncertainties.

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We have the Orion conflict or war oil

prices, cracks in the labor market.

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New fed chair, we could have

a whole conversation on this.

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Eric, can you provide us with a little

overview of the primary macro drivers

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right now that you're watching?

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eric kazatsky: I think you hit on all

the things that we're watching that we

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weren't watching to start the year None of

this was on any strategist's radar except

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for the fact that inflation was still a

little sticky coming into the start of

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this year But I think that this is the

environment where municipals really shine

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They're an uncorrelated asset class You

know when I say that they have different

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behavioral characteristics in a higher

volatility environment to the benefit of

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investors They're zigging when other asset

classes are zagging and that's what you

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want to balance the risk in any sort of

portfolio that has equities in other areas

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of fixed income but yes we are keeping

an eye on sort of the direction of rates

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although we tend to run our strategies as

duration neutral But you know as relative

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value managers we wanna be buying areas

of the curve that are continually the

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cheapest to have the best total return

possibilities So obviously the direction

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of rates and the steepness of the yield

curve are two things that factor into that

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Ryan: Yeah, no, you're exactly right.

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And it's a primary talking point

whenever you're talking about

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fixed income, the direction of

rates, the yield curve, whether

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eric kazatsky: Yeah

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Ryan: not gonna, I'm not in the

position to predict or even want

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to predict where those are going.

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eric kazatsky: Exactly But look I think

the things that we have in our you know

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front window looking forward over the next

several months is just being in a more

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defensive posture playing with structure

and that's what makes the muni market so

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great that it has convexity and structure

that you could pull different levers

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than you can in just corporate world

for instance you know from a couponing

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standpoint you know we were selling you

know smaller coupons at the end of last

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year and the beginning of this year and

buying higher coupons more defensive in

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a higher rate environment Obviously we

didn't know where rates were gonna go

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coming into this year with the volatility

but it proved to be the right move

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Ryan: Yeah, exactly.

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And we're gonna talk shortly

about the impact municipals

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have on an investment portfolio.

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You talked about increased

diversification, that lower correlation,

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which as we know is very important.

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But let's talk real quick, continue

this yield curve discussion.

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You talked about your very.

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Duration neutral.

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And so is there a certain part of

the yield curve that you and your

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team believe is most attractive?

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Or do you just go across

the whole yield curve?

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Is that something you don't really play

into since you're, more duration neutral?

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eric kazatsky: So we do top five insights

each and every December comes out in

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the beginning of January and it's really

a guidepost for what we're thinking

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about our portfolios you know across

the spectrum for the following year And

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a second insight this year was really

focused on where on the yield curve we

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thought that the most relative value was

And that really for us was you know a

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little bit longer between 17 to 22 years

on the curve it's where the yield curve

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on the municipal side is the steepest

So you're getting the most rolled down

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most income coming into portfolios but

on a ratio basis which is how munis are

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often looked at from a value standpoint

they tend to have the highest ratios

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meaning they're the cheapest so for us

it continues to be a higher conviction

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idea and it's interesting You see a lot

of the fund flows coming into our space

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aggregating in 10 years and in on the

curve and they're distorting the value

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there which you know in our opinion

makes the long end even more attractive

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Ryan: So how does, I was gonna ask,

you set those viewpoints at the

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beginning of the year, like you

said, at the beginning of the year.

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We didn't have the issues

that we have today.

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eric kazatsky: Absolutely

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Ryan: in, five months in, how did

geopolitical issues impact municipals

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as much as like they might just impact

credit or obviously treasuries and

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governments, are they a little bit more

shielded from the geopolitical chaos?

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eric kazatsky: Yeah because we're a

domestic based product right So they have

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their own issues to contend with And when

I speak about those issues in particular

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you have the pandemic money rolling off

state and local government balance sheets

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you have you know cuts to federal funding

trickling down to the local level you

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have the tax bill that was passed last

year that you know on the margin impacted

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you know some areas of healthcare and you

just have shifts in value proposition of

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the higher ed model in general So munis

definitely have their own sort of issues

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that they're dealing with domestically

but they are at the end of the day you

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know directionally pulled by the treasury

market and where that's going which is

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influenced you know by geopolitical issues

you know we don't move on a one-to-one

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basis but directionally we tend to follow

just maybe on a lag basis or you know

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where we tend to be a little bit ahead

of them I think that again that's the

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beauty of the muni market is that to some

degree we march to our own drum we're the

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treasury market with a credit component

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Ryan: Very good point.

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And like you, we said too, inflation's

a problem and inflation obviously is

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gonna impact all fixed income products.

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eric kazatsky: Yeah and I really think

it's inflation coupled with how the new

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Fed share when he finally you know takes

the reins is gonna tackle that problem you

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know you certainly came into the year with

the expectation of several cuts and then

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that went away pretty quickly but you know

I think that the administration's current

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focus is to try and get interest rate

costs lower right Roll over treasuries

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in a lower rate environment also make

having housing more affordable but I think

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there is generally a misunderstanding

that the administration wants you know

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more compressed housing spreads and

they conflate that with interest rate

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costs So you know they have a couple

problems that they need to solve this year

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Ryan: Very good point, Eric.

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So talk, focus more on Munis here.

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Why do you think they're attractive and

they're an attractive investment given

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this current macro environment that we're

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eric kazatsky: Yeah

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Ryan: with?

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eric kazatsky: I mean you highlighted it

that there's the lack of correlation the

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diversity in a portfolio you know take

taxable munis for instance If perfect

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satellite addition to someone who's

running a core plus strategy you know

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if you do a bolt-on edition of taxable

muni sleeve if you're bringing down

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the standard deviation of risk across

that account and that's really what you

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wanna do from a portfolio management

standpoint and add alpha along the way

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right Because you are getting a little

bit more spread for the taxable munis

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than you are on the corporate side and

in a low spread environment that's always

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a positive I do think munis you know we

know how they behave in you know down

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economic cycles We have a guidepost you

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know they tend to rally pretty strong

following those downturns So again we have

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a playbook at hand for forward performance

and it's you know looking pretty good

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Ryan: Yeah, great.

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They're, the benefits.

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Correlation.

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Real quickly, let's go back and

all over the place here, Erica,

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I have so much to comment on, but

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eric kazatsky: Great

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Ryan: There's taxable

munis and tax-free munis.

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eric kazatsky: Correct

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Ryan: think a lot of people forget about.

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There's taxable munis and maybe some of

the benefits they offer, and we always

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just focus on the tax free benefits of

Munis, which obviously is very important.

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there's other benefits to the taxable.

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eric kazatsky: I have five minutes with

an advisor and their question is what do

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you love the most this year What are your

best ideas I'm coming at them with two of

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the products that we have that are just

very unique One is you know our insured

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Ryan: I.

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eric kazatsky: bond ETF because we see

a lot of value in insurance on the you

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know as part of that wrapper but I'm

also talking to them about our taxable

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muni fund and they're inevitably the

question comes up why do these even exist

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And obviously it's a function of tax law

right There are a lot of issuers in the

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municipal space who wanna do financing

that just doesn't pass the sniff test with

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the IRS to have tax exemption And so a

lot of those issues fall into the taxable

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muni side of the market And some of those

issuers are pretty large household names

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right Like the Harvards of the world

Duke Universities Stanford University

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large healthcare systems in a multi-state

scenario where you have the willingness of

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non-traditional buyers to do credit work

there You know you're not really talking

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about a $10 million school district

deal in the middle of Pennsylvania You

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know I think that they almost have an

institutional like attraction there

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because of the size and that has really

helped with adoption of that side of

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the market in the last several years

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Ryan: Because I'll be honest with Jerry

I'm a, I often forget about it too.

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And the

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eric kazatsky: Yeah

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Ryan: when?

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eric kazatsky: don't blame you Most do

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Ryan: Okay, good.

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So I'm not the

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eric kazatsky: Yeah

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Ryan: I'm not the only one that.

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eric kazatsky: A lot of the questions

we get are why do these even exist And

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I'm like It's a fair question so we

walk them through you know why taxable

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munies exist and what the benefits

are Look you're getting all of the

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benefits of the credit side of the

muni market right That low correlation

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very statistically low historical

default rate just in a taxable wrapper

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Ryan: fantastic.

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We've talked already about

the benefits of Munis, right?

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Correlation, whether it's part

of the portfolio, investment

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portfolio, the role they play.

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But also in terms of just

the macro environment.

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So why do you believe munis

are often forgotten about?

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Whenever we think fixed

income, we think high yield.

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We think credit.

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We think governments now

even emerging market debt.

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Why do we forget about Munis?

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eric kazatsky: Because Sleep At Night

really isn't sexy for a lot of people

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right And at the end of the day you have

a lot of investment options that are

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generating fixed income especially on

the private side of the fence or on the

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alternative investment platforms that

have very high yields But I remember when

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I was starting off my career you know

we had a strategist on our desk who was

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wrote a piece and it was basically there's

no such thing as a free launch And it's

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really true in fixed income You cannot

have 10 11 12 yields without taking on

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some model of risk And so I think that you

know if you're willing to look optically

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at what munis are that safe portion of

your portfolio where you can get very

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attractive tax equivalent yields right

now given where absolute rates are they

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make a lot of sense I think it's just

bringing them to investors attention

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I'll give you a perfect example right

The New York City general obligation bond

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priced about two or three weeks ago at

this point but if you were a Manhattan

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resident so you're talking the highest

tax rate in the state and then the city

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tax on top of it close to a 55 all in

rate if you bought bonds in the long end

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of that curve you were probably close

to a 10 tax equivalent yield Now think

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about the equivalent risk you'd have to

take outside of the muni market to get

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something for 10 I you know that's the

conversations we're having a lot more of

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Ryan: Yeah, that's a great example because

I think when you throw numbers at it like

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that and you put the taxable equivalent,

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Rate on their yield,

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eric kazatsky: Yeah Grant not

everyone's in a 55 bracket so that

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Ryan: Yeah.

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eric kazatsky: We have a lot of

clients that are in high tax enclaves

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right Whether New Jersey Connecticut

New York or California you know

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those tax bills are getting up there

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Ryan: Yeah it's almost like it,

we talk a lot on the equity side.

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It's those blue chips, those

high dividend, high yielding,

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Stocks, equities, they're boring.

274

They're not sexy compared to the AI

shoot, to the moon stuff, but they play

275

a very important role when you're talking

about the construction of a portfolio.

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eric kazatsky: Look and here's something I

think that's underappreciated too right If

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you just take the tax equivalent yield of

municipals and measure them along with the

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dividend yield of the S&P 500 munis win

by a pretty wide margin So you know take

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capital appreciation out of the question

because we don't know what that path looks

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like for equities or munis just income

to income munis are the better investment

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right now to generate income on a basis

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Ryan: Yeah, for sure.

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So we talked a little bit about

duration earlier, and obviously whenever

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you're talking fixed income, you have

to talk about interest rate, risk,

285

and volatility there for financial

advisors who might be concerned about.

286

Interest rate volatility and the risk

that comes along with interest rates.

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Can munis be a little duration

played too, or how do they

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react to interest rate moves?

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Are they a little bit more muted

and not as sensitive as credit?

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eric kazatsky: It really depends on what

sort of wrapper they're in right you

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know at the end of the day municipals are

still a retail driven market and there's

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some emotionality involved in that You

know that's why when you look across

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the offerings that we have you know our

limited partnerships you know they're

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structured in a way where we take the

emotionality out of the equation because

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we have this differential liquidity

structure where you know we don't have

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to be meeting intraday or end of day sort

of liquidity needs So let's say you have

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a situation where you know you had the

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was a lot of knee-jerk reaction from the

rates market some sort of unnecessary

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selling from the muni side following that

you know those funds were a little bit

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more insulated You know whenever you have

high volatility moves you know you tend to

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you know gonna move in the same direction

as treasuries you know So to say they're

302

completely insulated no they don't move

as sharply in either direction And I think

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that especially where rates are right

now I think there's only so wide that

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spreads are gonna get on the muni side

or so high yields are gonna get before

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you really have crossover buyers you know

those non-traditional buyers munis come

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in and look to do more differentiated

investing for their portfolios

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Ryan: Eric, that's great.

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So with Muni, I do a lot of research

and Zephyr, because that it's not

309

as big now, but the active versus

passive debate, where can you.

310

Get some asset especially

on the equity side.

311

Are there asset classes where it's better

just to go passive and save some money?

312

Obviously large core, for fixed income,

I'm a firm believer you should go active.

313

Like I said before, there's

the fixed income space

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eric kazatsky: Yeah

315

Ryan: vast.

316

Is that the same with Muni too?

317

Do you feel like you're better

off taking an active approach?

318

Because if you take passive.

319

Yeah, maybe you're saving some fees

on the expense ratio, but at the same

320

time, there's so many elements the

muni world and fixed income space that

321

you wanna take an active approach to.

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eric kazatsky: You just said it

perfectly I'm gonna take you on

323

my client calls over the next

several weeks you can help me make

324

Ryan: not, Eric.

325

I'm not gonna win you any deals.

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eric kazatsky: yeah I mean look we're

an actively managed shop so you know

327

self-serving commentary aside I do

believe that especially in a an area

328

like municipals where we have you know

50,000 different issuers you know a

329

active approach where you're looking at

value on the curve and pairing that with

330

better credit selection is really the way

to play that market and it's proven over

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time right Now look that's not to say

that passive strategies and cheap beta

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options you know don't have suitability

in portfolios and I understand the

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attractiveness of getting muni exposure

at three basis points Totally understand

334

it But again you know if you wanna you

know have the best shot at outreturning

335

where inflation is or where it's heading

you know pair that cheap beta exposure

336

with an active strategy as well right And

you get the best of both worlds A perfect

337

example when you talk about diversity

is a lot of these large ETF aggregators

338

that are passive they don't invest in

the entirety of the market but they're

339

really marketed as the SPY equivalent

of the muni space But if you look under

340

the hood you're probably missing like

30 of the market And for us it's that

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30 where we're finding a lot of alpha

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Ryan: Yeah.

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I'll be honest with you, on the muni

market, I don't do a, haven't done a lot

344

of research in terms of these indexes.

345

And what their

346

Are.

347

But like with the egg,

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eric kazatsky: Yeah

349

Ryan: egg is, if you just go

passive, the egg, ETF, getting a

350

huge amount of treasuries in there.

351

Do you

352

want that in your core portfolio?

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eric kazatsky: Yeah so look in the

Bloomberg ag right there is a small slice

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under the other industrial sub-bucket

that actually has a little bit of

355

taxable muni in there Most people don't

know that So even if you just have beta

356

exposure you already have a little bit

of taxable media exposure but I think

357

like the things that are interesting if

you're just looking at just trying to

358

replicate the ag is that you do have a

lot of treasuries and you have a lot of

359

securitized product that if rates do shoot

down you know all of that's gonna get

360

refied right And you have some repricing

risk built in there again you know taxable

361

immunities make sense to bolt on there

because they're a little bit longer in

362

duration so you know you take some of

that element of uncertainty out of there

363

Ryan: Awesome, Eric.

364

Lastly, let's bring back to financial

advisors and client portfolios for them.

365

Even though munis have been

around for, centuries and stuff

366

and part of investment portfolios

there can be often forgot about.

367

How should financial advisors

think of Munis within a portfolio?

368

Should they just be

income producing asset or

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eric kazatsky: Yeah

370

Ryan: like you say, capital preservation?

371

How should they view

municipals within a portfolio?

372

eric kazatsky: I think they should be

viewed at as an income producing asset

373

with a total return upside right And

that's really what active management

374

brings to the table you know on our

alternative investment platform with our

375

limited partnerships you we're trying to

beat those blended benchmarks by 150 to

376

200 basis points each and every year We're

setting the bar high for outperformance

377

as well as delivering a tax exempt

income stream that on a tax equivalent

378

basis is very attractive right That's

what they need to be thinking about in

379

addition to the diversity that it brings

to the entire client investment portfolio

380

Ryan: Wow.

381

Awesome conversation, great insight

on, like I said, a space that I

382

think should get more attention, more

eyes, more headlines and municipals.

383

I'm sure you do too,

and the folks at mackay.

384

But insight.

385

I'm really glad you came on.

386

It's been an honor.

387

Where can our audience

get more information about

388

mackay Municipal Managers?

389

eric kazatsky: Absolutely So

our website you can go on either

390

through the New York Life Investment

Management Portal or Muni360

391

360.com

392

And we publish a lot of insights and

thought leadership pieces We do a weekly

393

that comes out every Tuesday all our

media pieces So everything that you wanna

394

find out about the franchise or you know

get an insight of what we're thinking

395

and most up to date is gonna be on there

396

Ryan: Yeah.

397

Eric, a lot of people

may not realize this.

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I do a little bit of research

before I jump on these calls.

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I go

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eric kazatsky: Yeah

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Ryan: websites, mackay.

402

You guys do a lot of great

information there, content research.

403

So for anyone who's looking

for information on municipals.

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Can't recommend it enough.

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Great stuff there.

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eric kazatsky: Appreciate that Yeah

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Ryan: you for coming on and thank you

everyone for listening to this episode

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is zephyr's Adjusted for Risk podcast.

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You can watch all of our other episodes

on the Zephyr YouTube channel, as

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well as on Spotify and wherever else

you catch your favorite podcast.

411

Thank you very much and have

a great rest of your week.