Shownotes
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:
Transcripts
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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
1099 at the end of the year And look
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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
know obviously 2020 2008 2009 and 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.
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They're not sexy compared to the AI
shoot, to the moon stuff, but they play
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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,
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and volatility there for financial
advisors who might be concerned about.
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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
tariff tantrum in spring of 2025 there
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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
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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
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as big now, but the active versus
passive debate, where can you.
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Get some asset especially
on the equity side.
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Are there asset classes where it's better
just to go passive and save some money?
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Obviously large core, for fixed income,
I'm a firm believer you should go active.
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Like I said before, there's
the fixed income space
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eric kazatsky: Yeah
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Ryan: vast.
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Is that the same with Muni too?
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Do you feel like you're better
off taking an active approach?
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Because if you take passive.
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Yeah, maybe you're saving some fees
on the expense ratio, but at the same
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time, there's so many elements the
muni world and fixed income space that
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you wanna take an active approach to.
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eric kazatsky: You just said it
perfectly I'm gonna take you on
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my client calls over the next
several weeks you can help me make
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Ryan: not, Eric.
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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
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self-serving commentary aside I do
believe that especially in a an area
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like municipals where we have you know
50,000 different issuers you know a
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active approach where you're looking at
value on the curve and pairing that with
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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
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it But again you know if you wanna you
know have the best shot at outreturning
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where inflation is or where it's heading
you know pair that cheap beta exposure
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with an active strategy as well right And
you get the best of both worlds A perfect
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example when you talk about diversity
is a lot of these large ETF aggregators
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that are passive they don't invest in
the entirety of the market but they're
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really marketed as the SPY equivalent
of the muni space But if you look under
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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
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of research in terms of these indexes.
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And what their
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Are.
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But like with the egg,
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eric kazatsky: Yeah
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Ryan: egg is, if you just go
passive, the egg, ETF, getting a
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huge amount of treasuries in there.
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Do you
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want that in your core portfolio?
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00:20:57,324 --> 00:21:02,004
eric kazatsky: Yeah so look in the
Bloomberg ag right there is a small slice
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00:21:02,034 --> 00:21:05,004
under the other industrial sub-bucket
that actually has a little bit of
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taxable muni in there Most people don't
know that So even if you just have beta
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exposure you already have a little bit
of taxable media exposure but I think
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like the things that are interesting if
you're just looking at just trying to
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00:21:15,819 --> 00:21:18,879
replicate the ag is that you do have a
lot of treasuries and you have a lot of
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securitized product that if rates do shoot
down you know all of that's gonna get
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refied right And you have some repricing
risk built in there again you know taxable
361
00:21:27,132 --> 00:21:30,012
immunities make sense to bolt on there
because they're a little bit longer in
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duration so you know you take some of
that element of uncertainty out of there
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Ryan: Awesome, Eric.
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Lastly, let's bring back to financial
advisors and client portfolios for them.
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Even though munis have been
around for, centuries and stuff
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and part of investment portfolios
there can be often forgot about.
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How should financial advisors
think of Munis within a portfolio?
368
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Should they just be
income producing asset or
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eric kazatsky: Yeah
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Ryan: like you say, capital preservation?
371
00:22:01,193 --> 00:22:04,433
How should they view
municipals within a portfolio?
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00:22:05,550 --> 00:22:08,572
eric kazatsky: I think they should be
viewed at as an income producing asset
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with a total return upside right And
that's really what active management
374
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brings to the table you know on our
alternative investment platform with our
375
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limited partnerships you we're trying to
beat those blended benchmarks by 150 to
376
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200 basis points each and every year We're
setting the bar high for outperformance
377
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as well as delivering a tax exempt
income stream that on a tax equivalent
378
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basis is very attractive right That's
what they need to be thinking about in
379
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addition to the diversity that it brings
to the entire client investment portfolio
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Ryan: Wow.
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00:22:40,421 --> 00:22:45,441
Awesome conversation, great insight
on, like I said, a space that I
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00:22:45,441 --> 00:22:50,061
think should get more attention, more
eyes, more headlines and municipals.
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00:22:50,871 --> 00:22:53,811
I'm sure you do too,
and the folks at mackay.
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But insight.
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I'm really glad you came on.
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It's been an honor.
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Where can our audience
get more information about
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00:23:00,671 --> 00:23:02,891
mackay Municipal Managers?
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00:23:02,960 --> 00:23:06,410
eric kazatsky: Absolutely So
our website you can go on either
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00:23:06,410 --> 00:23:09,499
through the New York Life Investment
Management Portal or Muni360
391
00:23:11,539 --> 00:23:11,819
360.com
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00:23:12,140 --> 00:23:16,700
And we publish a lot of insights and
thought leadership pieces We do a weekly
393
00:23:16,700 --> 00:23:20,480
that comes out every Tuesday all our
media pieces So everything that you wanna
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00:23:20,480 --> 00:23:23,240
find out about the franchise or you know
get an insight of what we're thinking
395
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and most up to date is gonna be on there
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Ryan: Yeah.
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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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00:23:33,656 --> 00:23:34,916
Ryan: websites, mackay.
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You guys do a lot of great
information there, content research.
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00:23:39,566 --> 00:23:43,556
So for anyone who's looking
for information on municipals.
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00:23:44,946 --> 00:23:46,176
Can't recommend it enough.
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00:23:46,176 --> 00:23:47,196
Great stuff there.
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eric kazatsky: Appreciate that Yeah
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00:23:49,176 --> 00:23:52,866
Ryan: you for coming on and thank you
everyone for listening to this episode
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00:23:52,866 --> 00:23:55,446
is zephyr's Adjusted for Risk podcast.
409
00:23:55,656 --> 00:23:59,856
You can watch all of our other episodes
on the Zephyr YouTube channel, as
410
00:23:59,856 --> 00:24:04,646
well as on Spotify and wherever else
you catch your favorite podcast.
411
00:24:04,646 --> 00:24:06,926
Thank you very much and have
a great rest of your week.
