06/30/2013

Arriving at Equity by Way of High Yield

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From the vantage point of the high yield corporate bond market, we believe we have an uncommon perspective on equity investment ideas.

Our perspective on the high yield market

In managing Aquila Three Peaks High Income Fund, a mutual fund that invests in high yield corporate bonds, we monitor and conduct research in the high yield corporate bond market on a daily basis. Over time, we have observed that the high yield corporate bond market appears to serve as a leading-indicator, reflecting broad-based transitions in investor sentiment that are later reflected in the equity market.

Our perspective on high yield issuers

As we search for investment opportunities in the high yield corporate bond market, we focus on industries with the ability to generate relatively stable revenue through the ups and downs of an economic cycle. We believe companies in those industries can more readily support high yield debt. We then search for experienced corporate management teams that have employed leverage, generated free cash flow, and placed a priority on improving the corporate balance sheet.We believe that a combination of the characteristics we seek, and improvement in the balance sheet, may lead to improvement in the equity performance.

Our perspective on the capital structure and debt covenants

In order to understand the variables that may impact corporate performance and the ability to service high yield debt, we examine the full capital structure, including any covenants that restrict corporate actions and protect bond holders. Our understanding of the full corporate capital structure, bond covenants, and factors contributing to improvements to the balance sheet, informs our opinions on potential improvements in the performance of the equity.

Our perspective brings together our income and equity investment strategies

In managing both high yield corporate bond and equity assets, we conduct rigorous initial and on-going research in order to understand the full corporate capital structure, and the range of variables that could impact revenue generation and corporate performance. We search for the characteristics that we believe will support principal and interest payments, result in improvements in the corporate balance sheet, and potentially lead to improved performance of the equity.

Aquila Three Peaks Opportunity Growth Fund

Aquila Three Peaks Opportunity Growth Fund may be included as a component of an investor’s total equity allocation. Due to the uncommon perspective and investment strategy of Aquila Three Peaks Opportunity Growth Fund, the portfolio is not aligned with an index and may not demonstrate a high degree of overlap with the remainder of the equity allocation.

Looking for an equity strategy? Once you take a close look at Aquila Three Peaks Opportunity Growth Fund, you may find that it is just what you were looking for.

 

Before investing in the Fund, carefully read about and consider the investment objectives, risks, charges, expenses, and other information found in the Fund prospectus. The prospectus is available from your financial advisor, and when you call 800-437-1020 or visit www.aquilafunds.com.

Investment Considerations: Mutual fund investing involves risk; loss of principal is possible.

Aquila Three Peaks Opportunity Growth Fund: An investment involves certain risks including market risk, financial risk, interest rate risk, credit risk, and risks associated with investments in highly-leveraged companies, lower-quality debt securities, foreign markets and foreign currencies, and potential loss of value.

Aquila Three Peaks High Income Fund: Investments in bonds may decline in value due to rising interest rates, a real or perceived decline in credit quality of the issuer, borrower, counterparty, or collateral, adverse tax or legislative changes, court decisions, market or economic conditions. The Fund’s portfolio will typically include a high proportion, perhaps even 100%, of high-yield / high-risk securities rated below investment grade. High-yield corporate bonds generally have greater credit risk than other types of fixed-income securities and may be especially sensitive to economic and political changes or adverse developments specific to the company that issued the bond.

 

Not FDIC Insured | No Bank Guarantee | May Lose Value | Not NCUA Insured