Oregon’s Retirement Conundrum


Tim Iltz VP, Municipal Bond Credit Analyst

Tim Iltz
VP, Municipal Bond Credit Analyst

Oregon’s Public Employees Retirement System (PERS) has once again become front page news in anticipation of the release of the 2017-19 contribution rates. The headline making news this week is that PERS now has an unfunded liability which has reached $21.8 billion or $16.2 billion when including side accounts. However, it is important to keep in mind that approximately 900 public employers participate in Oregon’s PERS, including school districts, special districts, cities, counties, and state agencies. Each of these participants has a different contribution rate and surplus or liability. System wide, rates are estimated to increase by 4.66% or 3.62% on a weighted basis.

While none of this is good news for participating Oregon local governments, it does not impact all participants equally. For example, Junction City School District and South Lane School District are both located in Lane County, and both serve the mission of educating K-12 students. However, Junction City School District has a total net contribution rate of 22.33% of covered payroll for tier-one/tier-two employees while South Lane School District has a net contribution rate of 4.37% of covered payroll. These rates are also affected differently by the proposed increases; Junction City School District’s contribution rates are estimated to increase an additional 4.61% to 26.94% while South Lane School District’s rates are estimated to increase 3.69% to 8.06%. Due to the large variance in rates and liabilities, we review each holding on an individual basis rather than resorting to broad generalizations. Read more “Oregon’s Retirement Conundrum”


Hawaiian Tax-Free Trust Shareholder Meeting on September 29, 2016


Shareholders of Hawaiian Tax-Free Trust are cordially invited to attend their annual shareholder meeting Thursday, September 29, 2016 at 10:00 a.m. at the Ala Moana Hotel, Hibiscus Ballroom, 410 Atkinson Drive, Honolulu, Hawaii.

Shareholders may also attend the shareholder outreach meeting on Tuesday, September 27, 2016 at 5:00 p.m. at the Maui Arts & Cultural Center, Haynes Meeting Room, One Cameron Way, Kahului, Hawaii.

Attendees will have the opportunity to visit with Trust Executives, Trustees, the Portfolio Managers and hear renowned Hawaii economist Paul H. Brewbaker speak about the Hawaii economy.

Please plan to attend. We look forward to seeing you.


Aquila Tax-Free Fund For Utah Shareholder Meeting on October 20, 2016


Shareholders of Aquila Tax-Free Fund For Utah are cordially invited to attend their annual shareholder meeting Thursday, October 20, 2016 at 8:30 a.m. at the Little America Hotel, 500 South Main Street, Salt Lake City, Utah. A buffet breakfast will be served prior to the meeting.

Attendees will have the opportunity to visit with Fund Executives, Trustees, the Portfolio Manager and hear Utah State Senator and former Trustee, Lyle Hillyard speak about the Utah economy.

Please plan to attend. We look forward to seeing you.


Aquila Tax-Free Trust of Arizona Shareholder Meeting on November 10, 2016


Shareholders of Aquila Tax-Free Trust of Arizona are cordially invited to attend their annual shareholder meeting Thursday, November 10, 2016 at 9:30 a.m. at JW Marriott Scottsdale Camelback Inn Resort and Spa, Scottsdale, Arizona.

Shareholders may also attend the shareholder outreach meeting on Wednesday, November 9, 2016 at 10:00 a.m. at Westward Look Wyndham Grand Resort and Spa, Tucson, Arizona.

Attendees will have the opportunity to visit with Fund Executives, Trustees, the Portfolio Manager and hear guest speaker and Trustee Grady Gammage, Founding Member; Gammage & Burnham, PLC, and author of “The Future of the Suburban City: Lessons from Sustaining Phoenix”.

Please plan to attend. We look forward to seeing you.


Improving Municipal Bond Disclosures


The municipal bond market includes over 50,000 state and local government issuers, which range from small school districts to the largest cities and states.  As borrowers, these issuers are required by their continuing disclosure undertakings to produce annual financial reports, which include material information that may impact the value of their outstanding bonds.

The Securities and Exchange Commission (“SEC”) has been engaged in a multi-year initiative to enhance the disclosures provided by municipal issuers, and the agency recently announced that it had reached settlements with 71 state and local issuers related to deficiencies in their disclosures.  The director of the SEC enforcement division said that these settlements are expected to heighten the level of attention given to disclosures and improve compliance. Read more “Improving Municipal Bond Disclosures”


Aquila fund recognized in New York Times report


Aquila Three Peaks Opportunity Growth Fund was included in a New York Times report listing 5-Year Leaders among US General Stock Funds based on total return performance results through June 30, 2016.

The New York Times report recognizes the top 20 performing US General Stock Funds, based on Morningstar total percentage returns for the quarter, the year and five years, annualized, and the fund’s rank within the universe of Nasdaq-listed stock funds tracked by Morningstar Inc. for periods ending June 30, 2016. Only funds traded on Nasdaq with at least $50 million in assets were included.

Aquila Three Peaks Opportunity Growth Fund pursues a distinctive approach to selecting equity investments based on a long history of conducting research in the high-yield corporate bond market, and investing in high-yield issuers when research indicates they are successfully and prudently managing leverage and the corporate balance sheet. The characteristics we look for in high-yield debt issuers have helped identify opportunities for improvement in the equity performance of those companies. This strategy in the high-yield debt market is the foundation on which the strategy of Aquila Three Peaks Opportunity Growth Fund was built.

Performance quoted in The New York Times report may not be current. For current quarter-end standardized performance please click here.

Before investing in a Fund, carefully read about and consider the investment objectives, risks, charges, expenses, and other information found in the Fund prospectus. The prospectus is available on this site, from your financial adviser and when you call 800-437-1020.

Morningstar, a mutual fund rating service, compiles performance data used to derive their own ranking data. Morningstar rankings are based on total return calculations without an adjustment for sales charges.


Aquila Municipal Bond Funds Continue to Avoid Puerto Rico Debt


Each of the municipal bond funds offered in the Aquila Group of Funds adheres to an investment strategy focused on investment grade bonds as a means of managing credit risk, and an intermediate average portfolio maturity as a means of managing interest rate risk. In keeping with our emphasis on high-quality holdings, the seven state-specific municipal bond funds offered by Aquila have no Puerto Rico holdings.

On July 1, 2016, Puerto Rico will default on constitutionally guaranteed debt by failing to make principal and interest payments due on that date.  The President signed legislation on June 30th, 2016 that will facilitate a restructuring of Puerto Rico’s debt without committing federal funds to the territory.  The market has been anticipating this outcome for several years while the territory struggled with recession, declining reserves and a declining population.

On the Aquila Group of Funds website, you will find information regarding the investment strategies and full portfolio holdings of each state-specific municipal bond fund. The investment objectives, risks, charges, expenses, and other information will be found in the Fund prospectus. Information on the Fund holdings will be found in the Fact Sheet, Annual and Semi-Annual reports, and the Portfolio Holdings report for each Fund. We encourage you to review this information, and to visit the web site frequently for updates on each Fund, and our perspectives on the markets.


Brexit – Day One


Global financial markets were turbulent during the first day of trading following the United Kingdom vote to leave the European Union.

Amid the market uncertainty, investors moved assets to the safety of U.S. government bonds, pushing prices higher and yields lower.   Yield on the 10-year Treasury note dropped to an intra-day low of 1.419% (near its record low yield of 1.404%), but by the end of the day, the yield on the 10-year Treasury was 1.575%; down from 1.745% on the previous day.

Thomson Reuters Municipal Market Data reported that municipal bond yields reached all-time lows, with the benchmark 30-year AAA dropping to 2.08%.  Total return on the Barclays 10-Year Municipal Index was 0.82% for June 24th with a yield to worst of 1.57% versus 1.70% on June 23rd.

During periods of market turbulence, a ‘flight to quality’ on the part of investors has resulted in buying US Treasuries and, to a lesser degree, municipal bonds.  That demand typically drives prices higher and yields lower.  Although the Federal Reserve had previously indicated that another rate increase was possible in 2016, it now appears that any increase could be postponed until late 2016 or sometime in 2017. Read more “Brexit – Day One”


Utah Ranks 7th in National Study of Fiscal Condition


Utah with imageOnce again, the state of Utah has been recognized for its fiscal health. In a study of fiscal condition by the Mercatus Center at George Mason University, Utah ranked 7th in the nation based on short and long-term debt, and other obligations such as pension funding and health care costs. According to the report, Utah is in sound financial shape with over 4 times the cash needed to cover short-term liabilities, and revenues exceeded expenses by 14% for a surplus of $500 per capita in fiscal year 2014. The state’s net assets were 29% of total assets and total liabilities were found to be only 18% of total assets. In fiscal year 2014, the state carried a debt of $4.9 billion, and the unfunded pension liabilities were $29.8 billion, on a guaranteed-to-be-paid basis, which is considered healthy.

The report ranked each state in five categories of financial solvency: cash solvency (Utah ranked 6th), budget solvency (Utah ranked 5th), long-run solvency (Utah ranked 16th), service-level solvency (Utah ranked 12th) and trust fund solvency (Utah ranked 26th).

Utah’s resilient and diverse economy and judicious fiscal policies have been cited as primary reasons for the state’s continued financial strength.


Aquila Three Peaks High Income Fund Celebrates 10 Years


Tenth anniversary symbol in gold isolated on white backgroundTen years ago, with the launch of Aquila Three Peaks High Income Fund, we introduced what we believe is a time-tested, distinctive high-yield investment strategy to the market.

The strategy focuses on finding high-yield corporate issuers with experienced management teams that are generating free cash flow and committed to improving the corporate balance sheet. We avoid highly-cyclical industries and invest most, if not all, of the Fund’s assets in high-yield, income producing, corporate debt securities, making Aquila Three Peaks High Income Fund a true high-yield portfolio.
The implementation of the strategy over the last 10 years has resulted in positive total returns for the Fund in each year other than 2008 (an extremely tough year for most asset classes in the wake of the financial crisis). The Fund has never experienced the default of a bond held in the portfolio.

The strategy’s success is rooted in intense, hands-on research by a team that is sticking to their recipe. The portfolio managers and analysts do their homework – they kick the proverbial tires with visits to the companies in which the Fund invests. They meet with management teams, employees, customers and even competitors. They also take a conservative approach by avoiding what they believe are overly-risky sectors and securities – this approach has served the Fund well in periods of volatility, but also means the fund may lag during particularly strong markets.

The Fund was recently recognized for its one-year performance in both the WSJ’s Category Kings and InvestmentNews’ Best-and-Worst Performing Fixed-Income Funds. Current quarter-end performance can be found on the Fund Fact Sheet.
Read more “Aquila Three Peaks High Income Fund Celebrates 10 Years”