Higher-education municipal bonds have been battered amid the fallout from President Donald Trump’s policies. However, there are buying opportunities if you know where to look, according to Nuveen. Trump has targeted several colleges and universities since taking office, including freezing research money and hiking the tax rate on endowments. However, the worst of the headline risk has now passed for higher-ed munis, which represent just about 6% of the $4.3 trillion muni bond market, said Dan Close, head of municipals at Nuveen. “Right now, the higher education sector is on sale,” he said. Municipal bonds are generally free of federal taxes. They may also be exempt from state tax if the holder resides in the state in which the bond was issued. The higher-ed sector had already been struggling with declining enrollment. Then, in March, Moody’s downgraded the cohort to negative from stable due to potential policy changes coming from the White House. There has also been a lot of issuance, with $26 billion in new muni bonds issued in the first half of the year — a 37% increase compared to the same period last year, Close pointed out. That includes some taxable munis from universities looking to drum up additional funding. The increase in issuance came about because of the uncertainties around research grants, the endowment tax, student aid and international study policies, Close said. However, he expects those patterns to normalize once there is clarity on federal policies. Winners and losers While some institutions are struggling, there are others that are in great shape — and have just been hit by the negative news, Close said. “If you can navigate and really find those credits where you do have good management, good student demand, good operating margins, good cash flow — we think that those are going to have spread tightening over time and present a very good total return opportunity,” he said. Across the board, public institutions are doing well thanks to the broad support they are seeing, Close said. “Some are better than others, but there’s just a rising tide we’re seeing with state coffers being at the highest point that they’ve been in more than four decades,” he said. “The amount of money that continues to be directed towards public higher education continues to improve.” Among the names in the Nuveen Intermediate Duration Municipal Bond Fund are the University of Texas and California State University. The University of Massachusetts is one of the holdings in the Nuveen Limited Term Municipal Bond Fund. Close said the names are all trading cheap relative to their intrinsic value. NUVBX YTD mountain Nuveen Intermediate Duration Municipal Bond Fund year to date. Meanwhile, Close is avoiding private schools that are highly tuition dependent, don’t have a STEM program and are facing declining enrollment. Instead, he focuses on those that have student demand, very good operating margins, free cash flow from endowments and leadership stability. While the One Big Beautiful Bill raised the tax on endowments to go up to 8%, the final figure was less than initially thought, Close said. The end result is just a handful of institutions will be impacted by it, he said. “[There are] certain names we think are exceptionally cheap, especially for those Ivy League schools that have the large endowments and that we think can really go in and weather some of the the hits that they’ve taken here over the last couple months,” he said. Names in Nuveen’s muni funds include Harvard, Princeton, University of Chicago and Texas Christian University.
