In tax-exempt separately managed accounts, the outlook for2026 emphasizes active management, credit selection, and tactical duration positioning amid heavy issuance and evolving rate expectations. Municipals still offer compelling tax-equivalent yields, but valuation dispersion will reward managers who can differentiate across states, sectors, and structures.
Separately managed accounts are positioned to benefit from continued investor interest in transparency, customization, and disciplined credit analysis. This is highlighted when supply remains elevated and policy uncertainties persist going into and through the 2026 midterm elections.
1. Tax Efficiency and Control:
Separately managed accounts give investors direct ownership of bonds with federal (and often state) tax-free income. This is a core tax advantaged benefit that institutional and high-net-worth investors value most. Managers can tailor holdings to investor tax brackets, states of residence, and specific cash-flow needs.
2. Active Management and Tactical Flexibility:
We believe that given a backdrop of projected heavy issuances and expected yield curve volatility, active yield-curve positioning and credit selection will matter.Separately managed accounts are inherently more flexible than index vehicles, allowing managers to capitalize on opportunities in out-of-benchmark maturities and sectors where pricing inefficiencies emerge.
3. Credit Selection Matters More Than Ever:
Research highlights the need for selectivity across municipal credit in 2026, even with overall stable credit. Technical and fundamental dispersion, especially at sector and subsector levels (e.g., hospitals, transportation authorities, school districts) will reward separately managed account managers with rigorous credit research.
Heavy New Issue Calendar and Supply Pressure Expect supply pressures to be most acute in early 2026 as issuers front-load deals ahead of potential macro or policy shifts (e.g., tax policy changes or regulatory reform). Elevated new issues can dilute demand pressure and widen secondary spreads, creating tactical opportunities for separately managed account managers who can:
Demandvs Supply Divergence
If supply outpaces investor demand, price performance could soften, making credit selection more critical. Separately managed accounts can offer the ability to pick relative value and focus onhigher-quality credits with stronger fundamentals or more favorable market dynamics.
Stateand Sector Activity:
Issuers from large states with significant capital planssuch as California, Texas, Florida, and New York are likely to dominate issuance flows, and separately managed accounts can provide managers with the discretion to overweight or avoid specific state or revenue profiles.
Moderationin Supply and Rebalancing of Demand
As seasonal reinvestment demand increasesand issuance potentially stabilizes, technical conditions may improve fortax-exempt separately managed accounts. Fund flows driven by roll-down opportunities and yield-curve repositioning could provide relative support for intermediate-term municipal credit.
Midterm Election Clarification:
Post midterm outcomes are likely to reduce uncertaintyaround tax policy, potentially increasing demand for municipal bonds.
CreditDifferentiation as Opportunity:
With overall stable credit, differentiation in higher education, healthcare, and public transportation could create alpha opportunities within separately managed accounts where managers can pick relative value and underweight stressed sectors.
In taxable municipal separately managed accounts, the environment is constructive, with manageable new issuance, normalized spreads, and demand from institutional investors seeking high-quality yield within corporate-comparable frameworks.
We believe taxable municipal separately managed accounts are positioned to benefit from continued investor interest in transparency, customization and disciplined credit analysis. Particularly as supply remains elevated and policy uncertainties persist going into and through the 2026 midterm elections.
Taxable municipal strategies are attracting growing interest from institutional and taxable accounts given:
First Half of 2026
Relative Value Versus Corporates
Taxable municipals enter the year with spreads that have normalized after 2025 tariff-related volatility and should remain competitive with taxable corporates. This supports separately managed account allocations geared toward yield uptake without taking excessive credit risk.
Issuer Supply & Credit Backdrop
Taxable issuance is expected to be modest but sufficient, supporting liquidity without overwhelming demand. This positions taxable separately managed accounts as a core complement to tax-exempt separately managed account holdings and diversified portfolios.
Second Half of 2026
Improved Technicals and Fed Clarity
If the Federal Reserve continues easing in the second halfof 2026, interest rates could settle, potentially narrowing spreads andsupporting price appreciation in taxable municipals. Separately managed accountmanagers can adjust duration and credit exposure proactively as rate signalssharpen.
Midterm Election Impact:
Taxable municipal demand may benefit from clear erexpectations around federal capital policy and funding priorities.
The short-duration tax-exempt municipal bond market offers a compelling blend of capital preservation, income generation, and tactical liquidity. In the evolving economic and policy landscape of 2026, it remains relevant as short maturities tend to be less sensitive to interest-rate volatility and more anchored to front-end monetary policy expectations. With fundamentals strong, credit quality generally stable, and a tax regime that continues to favor municipal income, short-duration municipals can provide strategic value to investors and separately managed accounts alike.
In summary, we believe that the short-duration tax-exempt municipal segment in 2026 is poised for stable income, limited duration risk, and attractive tax-equivalent yield relative to money-market alternatives. On a taxable-equivalent basis, short tax-exempt municipals remain compelling versus both municipal and taxable money-market funds, especially for higher-bracket investors.
In the context of managing short-duration portfolios, a critical comparison is against money-market funds (both taxable and municipal). Below is a conceptual comparison grounded in recent yield data and tax-equivalent analysis:
Tax-Exempt Short Munis
Municipal Money Market Funds
Taxable Money Market Funds
Tax-Equivalent Yield Example (40% Tax Bracket):
This framework clearly illustrates that short tax-exempt municipals can offer a significant after-tax advantage over both municipal and taxable money-market funds, particularly for high-bracket taxpayers. In practical terms, investors often find short tax-exempt bonds yield more attractive tax-equivalent returns than even high yielding money-market alternatives.
One Oak Capital Management is an SEC-registered investment adviser and manager of separately managed portfolios. Registration as an investment adviser does not imply a level of skill or training. This presentation is not an offer to sell, or the solicitation of an offer to purchase, any investment managed or sponsored by One Oak Capital Management or any of its affiliated entities (collectively, “One Oak”). The index shown is provided for illustrative purposes only, is unmanaged, reflects the reinvestment of income and dividends, and does not reflect the impact of advisory fees. Investors cannot invest directly in an index. Comparisons to indices have limitations because indices have volatility and other material characteristics that may differ from a particular OneOak strategy. One Oak's performance may differ substantially from the performance of an index. In addition, data used in the benchmark are obtained from sources considered to be reliable, but One Oak makes no representations or guarantees with regard to the accuracy of such data. The EnhancedMunicipal Portfolio uses active management and is not benchmarked to the index.
Past performance is not representative of future return performance. Net returns are calculated by deducting the highest standard fee from the gross returns on a quarterly basis. The returns reflect the net performance of employing One Oak's highest fee, 0.30% per year to the gross performance. Net returns do not include any additional intermediary fees that may be charged to the end investor. The presentation and the net performance is meant for financial professionals use only and is not intended for distribution to the end users. The returns include the reinvestment of dividends, interest, and other earnings. The information provided was calculated by One Oak Capital Management, LLC using a combination of proprietary and external data sources and has not been audited for accuracy. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, or state or local taxes. Profits and losses on federally tax-exempt bonds may be subject to capital gains tax treatment. Fixed income risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. One Oak's management fees are deducted each quarter on the first month of the quarter: January, April, July and October. One Oak does not accrue its management fee for the remaining months and therefore the net performances for those months will be higher and does not represent the actual annual net returns.
Due to various risks and uncertainties, actual events, results or the actual performance of the investment may differ materially from those reflected or contemplated in the returns presented within. While assumptions underlying various statements as to the future performance are believed to be reasonable in nature, prospective investors should make their own assessments as to such assumptions and the associated risks, including the likelihood of the strategy achieving the corresponding results. All of which are subject to risks and uncertainties many of which are beyond the control of the investment adviser. As such, no assurance is given as to the realization of any such future performance. No representation or warranty is made as to the future performance or such forward-looking statements. The delivery of this presentation does not imply that any other information contained herein is correct as of any time subsequent to the presentation date. Actual performance results may differ from composite returns, depending on the size of the account, investment guidelines and /or restrictions, inception date, and other factors. One Oak Capital Management, LLC ("One Oak") claims compliance. with the Global Investment Performance Standards (GIPS) and has prepared and presented this report in compliance with the GIPS standards. One Oak has been independently verified for the periods 2019 through 2022.
Fees and yields are calculated by One Oak as of 07/22/25. Prospective investors are encouraged to consult a tax professional before making the decision to invest. Source: Schwab Data as of July 22, 2025. For illustrative purposes only. The framework discussed herein is hypothetical and does not represent the investment performance or the actual accounts of any investors or any funds. The results achieved in our simulations do not guarantee future investment results. It is possible that the actual results of an investor who invests in the manner these projections suggest will be better or worse than the projections, and that an investor may lose money by investing in the manner the projections suggest. The index is included for illustrative purposes only, is not available for direct investment and does not reflect the deduction of fees or expenses which would reduce returns.Actual performance results may differ from composite returns, depending on the size of the account, investment guidelines and /or restrictions, inception date, and other factorsTo invest with One Oak Capital Management LLC, you must be a qualified or accredited investor. Different share classes may have different results. Consult your individual statement.
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For more information regarding the Morningstar Rating methodology please visit www.morningstar.com/content/dam/marketing/shared/research/methodology/771945_Morningstar_Rating_for_Funds_Methodology.pdf
The PSN Municipal Universe consists of 213 strategies, across 98 firms. PSN utilizes a proprietary of our clients’ top priority performance screens. PSN Top Guns runs products in six proprietary categories in over 50 universes. This is a highly anticipated ranking and is widely used by institutional asset managers
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