Morningstar Magazine - February/March 2018 - 80

Ten Questions

Charles Hill of T. Rowe Price on the
evolving muni market.
Laura Lallos, Morningstar magazine's managing
editor, interviewed Hill in December, before the Tax
Cuts and Jobs Act became law.
1. How has the muni market changed over your career?

We are light years ahead of where we were 20
years ago when we relied on a Telerate
screen, Monroe calculator, fax machine, and
a phone. There was no Bloomberg, Internet,
or real-time trading information. Technology has
made the market much more transparent
and efficient.
2. Is the trend toward index muni investing decreasing

5. Is lack of supply a challenge?

It seems like supply is always either too high
or too low. That said, we seem to complain
more about the lack of supply. It may get worse
with the pending tax legislation.
6. Are current tax proposals likely to hurt or help the

muni market overall?

It appears likely that advance refundings
will be curbed, while private activity bonds will
retain their tax-exempt status. Issuance will
decline, creating a supportive technical backdrop
for munis. If the SALT deduction is limited, demand
should increase in high-tax states.

value opportunities?

We still see opportunities. Indexing allows
for indiscriminate investing. As an active manager,
if we don't like it, we won't own it. That
can sometimes hurt relative returns, but over the
long run, our active approach has driven solid
absolute and relative returns.
3. How do T. Rowe's analysts contribute to the process?

Charles Hill, CFA, a vice president of T. Rowe
Price Group and T. Rowe Price Associates,
joined the firm in 1991 and is a portfolio
manager in the fixed-income division, running
short- and intermediate-term municipalbond strategies. His charges include T. Rowe
Price Summit Municipal Intermediate
Fund PRSMX, which earned a Morningstar
Analyst Rating of Gold for its in-depth research
process, experienced investment team,
and impressive long-term risk-adjusted returns.

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Morningstar February/March 2018

Fundamental credit research is the foundation.
Our analysts identify attractive investment
opportunities, and their research and ongoing
surveillance also help to protect us from considerable idiosyncratic downside.

7. How has the hurricane season affected investors?

Two very different stories played out this
fall. Houston's experience reinforced our understanding of the resiliency of most states
and municipalities, as its storm has had negligible
impact on the credit quality of its debt.
In Puerto Rico, prices have been cut in half as
recovery has become more uncertain. However,
most of their debt had already moved
into the hands of hedge funds and distressed
debt players before the storms, so the impact on
traditional municipal investors is limited.
8. Will a Powell-led Fed mean change or continuity?

4. Why your focus on healthcare and transport-

ation bonds?

The two sectors have offered considerable
spread. The credit quality of nonprofit hospitals
has been on a positive trajectory, driven
by improving reimbursement trends, solid fiscal
stewardship, and bolstered balance sheets.
The essential service transportation projects we
invest in-toll roads and airports-often
benefit from limited competition and strong
support from federal and state sponsors. These
sectors are also generally insulated from
the pension and political risk that can affect
general-obligation issuers.

Continuity. Jay Powell has no interest in upsetting
the apple cart. I think people will appreciate his
directness relative to past Fed chairs.
9. What do you enjoy doing when you aren't running

muni-bond portfolios?

Anything that gets me outside with friends and
family, from skiing and golf, to kids' sporting
events, to yardwork, or hanging out by a fire pit.
10. What are you recommending to friends these days?

I heard the band Yarn at a party over the
summer, and I can't stop listening. I am driving
my family nuts.
Table of Contents for the Digital Edition of Morningstar Magazine - February/March 2018
