06/15/2021

Pension Funding & State Finances

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The relationship between municipal credit ratings and pensions is simple, and pension health has become a critical factor in determining states’ credit ratings. The funding rate of pension plans is indicative of a state’s long-term ability to manage general finances responsibly. For municipal issuers, credit rating is arguably the most important element when determining financing costs. Since the Great Recession, rating agencies have used pension funding as a dominant factor in their rating methodology.

Borrowing costs are typically higher for issuers with a history of financial stress related to debt repayment and revenue streams. Of course, state and local governments have varying pension funding levels and liabilities, some healthier than others. A portion of payroll taxes primarily funds the liabilities. The higher the liabilities, the more likely they will affect credit evaluations. Furthermore, pensions affect state and local government budgets because many states redirect general fund revenue receipts to the programs.

Read more “Pension Funding & State Finances”

05/24/2021

Understanding Interest Rate Risk in Bond Funds

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Since March of 2020, The Federal Reserve has kept the Fed Funds target rate at the 0-0.25% range to stimulate the economy, and elected to maintain that level at the most recent Federal Open Market Committee meeting. With the country beginning to reopen and return to normal, the idea of rising interest rates has resurfaced.

While the Fed continues to watch economic data to determine the target rate, long-term rates are still controlled by investor demand. Yields on the 10-year Treasury bond have inched up this year evoking an important aspect of investing in bond funds, understanding interest rate risk.

A common misconception of investing in bonds is that when interest rates rise, bonds fall out of favor as their prices drop. While the inverse relationship between interest rates and bond prices exists, there are many factors to consider when planning current and future bond holdings – whether to hold individual bonds or invest in a bond mutual fund.

Duration

A bond fund’s duration, specifically modified duration, is an indicator of how sensitive the net asset value is to a change in interest rates. Duration provides investors with another aspect of comparison between bonds with different maturities and coupon rates. Simply stated, for every 1% change in interest rates, positive or negative, the price of a bond fund will inversely decline or increase by its modified duration. For example, if a fund’s modified duration is 5 years, the net asset value could be expected to rise 5% for every 1% decline in interest rates and fall by 5% for every 1% increase in interest rates. Bond funds with longer average maturities and lower average coupons have a longer duration, and therefore generally experience a higher degree of price fluctuation, while bond funds with shorter average maturities and higher average coupons have a shorter duration and generally experience a lesser degree of price fluctuation.

Price Returns and Total Returns

The good news is that performance of bond funds is not solely tied to the incremental changes in interest rates. Bond fund total returns are generated from two sources; interest payments on bonds (paid as fund distributions) and changes in bond prices. While interest rates rise, active portfolio managers have opportunities to purchase bonds at higher yields, and over time, a portfolio’s income may offset a decline in the value of individual bonds, mitigating the impact of that decline on a Fund’s total return.

Since its inception in 1980, approximately 98.6% of the Bloomberg Barclays Municipal Bond Index total return has been generated by income.

 

 

Active Bond Fund Management

Periods of rising rates can be challenging for investors who purchase individual bonds or funds aligned with a bond index. Active bond fund managers have the ability to take strategic steps to mitigate, to some degree, the impact of market volatility. With the ability to actively manage fund holdings over time, these managers may implement a number of strategies to adjust fund holdings based on market expectations. Fund holdings may be altered by quality rating in an effort to manage credit risk – a risk that may increase along with rising rates. Holdings may also be altered by maturity date and coupon, thereby adjusting portfolio duration or the sensitivity of the portfolio to movements in rates. Reducing portfolio duration would reduce sensitivity to a change in rates.

Read more “Understanding Interest Rate Risk in Bond Funds”

05/07/2021

Chris Johns on Asset TV’s May Muni Bond News

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Aquila Group of Funds Portfolio Manager, Chris Johns, was a guest on Asset TV’s May Muni Bond News with JR Rieger of The Rieger Report.

In this 10 minute program, Chris and JR discuss their outlooks for the months ahead, the prospect of higher taxes, and which areas of the muni market are seeing the most demand.

Chris Johns is Senior Vice President, Managing Director and Portfolio Manager with Davidson Fixed Income Management, sub-adviser to Aquila Tax-Free Fund of Colorado and Aquila Tax-Free Trust of Oregon.

Shares of the Funds may only be sold by offering the Funds’ Prospectus. 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.

04/13/2021

Are You Free of Your Tax Bill for the Year?

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Tax return form with pen and calculator

This year, the IRS has extended the individual tax deadline to May 17th, but in a typical year, Tax Day would be Thursday, April 15th. On that date, the nation will still be working to pay this year’s taxes.

Every year the Tax Foundation calculates Tax Freedom Day®, which determines the day the country has earned enough money collectively to pay its total tax bill. The calculation considers all federal, state, and local taxes and divides them by the nation’s income. For 2021, Tax Freedom Day falls on April 17th. So, the average taxpayer will spend 106 days working to pay their taxes.

Of course, every taxpayer is different. Your individual freedom day can be calculated for this year once you’ve finished your tax forms. Find your adjusted gross income on your 2020 tax form. Total up your federal, state and local tax obligations. Then divide your taxes by your adjusted gross income; multiply that percentage by 365 which will give you the number of days you must work to pay your taxes. Count the number of days on the calendar and the next day is your personal tax freedom day. Read more “Are You Free of Your Tax Bill for the Year?”

02/04/2021

Chris Johns Covered Munis on CNBC’s The Exchange

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Aquila’s municipal bond fund portfolio manager, Chris Johns, was a recent guest on CNBC’s The Exchange with Brian Sullivan. Chris and Brian discussed the growing size of outstanding municipal bond debt and the importance of in-depth credit research in an environment where demand is high and credit spreads are narrow. Chris also shared his thoughts on current credit trends and the risk profile of municipals.

You can watch Chris’ segment on CNBC’s website, under The Exchange’s Muni Money section, or listen to the segment on The Exchange’s January 29th podcast; available on all podcast platforms.

Chris has managed Aquila Tax-Free Fund of Colorado for over 30 years and Aquila Tax-Free Trust of Oregon, which he co-manages with Tim Iltz, since 2011.

Shares of the Funds may only be sold by offering the Funds’ Prospectus. 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.

01/14/2021

The Wall Street Journal Quotes PM Chris Johns on Muni Issuance Boom

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Chris Johns

Municipal bond issuance is at a 10-year high, reports The Wall Street Journal earlier this week. And Wall Street’s paper of record reached out to Aquila portfolio manager Chris Johns for his insights on the boom.

Muni bond issuance totaled $474 billion in 2020 as state and local governments took advantage of low interest rates to raise capital while revenue streams continued to decline due to pandemic pressures. Taxable issuance was up for the year as governments took advantage of the ability to fill budget gaps with those funds, and lower-rated borrowers caught a break as risk tolerance shifted with the search for yield.

“Alongside the drop in yields, another factor driving the borrowing was that yield-hungry investors were willing to accept less interest from lower-rated borrowers relative to what they demanded from higher-rated ones”  – Chris Johns

 

Mr. Johns has managed Aquila Tax-Free Fund of Colorado for over 30 years and is a co-portfolio manager, along with Tim Iltz, of Aquila Tax-Free Trust of Oregon.

 

Shares of the Funds may only be sold by offering the Funds’ Prospectus. 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.

01/08/2021

A Distinctive Midcap Fund Celebrates 10 Years

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The Aquila Three Peaks Opportunity Growth Fund strategy celebrated its 10th anniversary in the fourth quarter of 2020. In October 2010, the management team at Three Peaks Capital Management brought a new approach to Aquila’s equity fund, which was launched as a rocky mountain regional investment strategy in 1994. Through detailed research of the corporate debt market for the management of Aquila Three Peaks High Income Fund, industry veteran, Sandy Rufenacht, and his team noticed that prudent corporate actions taken to improve balance sheets, reduce debt and create free cash flow often laid the groundwork for potentially strong equity returns.

Over the past decade, the Fund has been recognized by Barron’s, Lipper, the Wall Street Journal, Investor’s Business Daily, and many other publications. We credit the Fund’s success to the distinctive management process that is rooted in intense research and built on extensive experience in the high-yield market.

A conservative approach

We attempt to mitigate risk by looking for companies in industries with relatively consistent revenue generation (non-cyclical industries), that have demonstrated the ability to grow even in a low-growth economy. Our strategy is to maintain a broadly diversified, well-researched, well-balanced portfolio to reduce volatility. We implement this strategy through fundamental, bottom-up analysis of each company in which we invest.

If you are looking for an equity fund with a management strategy unlike many of its peers, take a closer look at Aquila Three Peaks Opportunity Growth Fund.
Read more “A Distinctive Midcap Fund Celebrates 10 Years”

12/30/2020

Actual 2020 Capital Gain Distributions

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Following are capital gain distributions paid on December 3, 2020, and December 30, 2020.

Aquila Three Peaks Opportunity Growth Fund paid a short-term capital gain distribution of $1.70172, and a long-term capital gain distribution of $0.70763 on December 3, 2020 with a record date of December 2, 2020.

Hawaiian Tax-Free Trust paid a long-term capital gain distribution of $0.02283 on December 30, 2020 with a record date of December 29, 2020.

The following funds did not capital gains distributions in December, 2020.

 

Aquila Tax-Free Trust of Arizona
Aquila Tax-Free Fund of Colorado
Aquila Churchill Tax-Free Fund of Kentucky
Aquila Narragansett Tax-Free Income Fund (RI)
Aquila Tax-Free Trust of Oregon
Aquila Tax-Free Fund For Utah
Aquila Three Peaks High Income Fund

Printable Version

1 Represents undistributed realized gains from fiscal year 2020 which must be distributed in 2020 and cannot be reduced.

Aquila Distributors LLC does not provide accounting, tax or legal advice. Shareholders should seek tax advice based upon their particular situation.

Shares of the Funds may only be sold by offering the Funds’ Prospectus. 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 from your financial advisor, and when you call 800-437-1020 or visit www.aquilafunds.com.

12/09/2020

Tony Tanner, CFA® Discusses the Muni Market on Asset TV Masterclass

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Tony Tanner, CFA®, Portfolio Manager of Aquila Tax-Free Trust of Arizona, was among a panel of municipal experts on Asset TV’s November 2020 Municipal Bond Masterclass. The full program, which offers one hour of CE credit, covers municipal credit, the impact of the coronavirus pandemic, macro considerations for investors, and much more.

Watch Tony’s portion of the program for his thoughts on the municipal bond market, finding credit opportunities and which sectors he is watching closely.

[This video is no longer available]

Mr. Tanner is Senior Vice President of Aquila Investment Management. He is the Lead Portfolio Manager for Aquila Tax-Free Trust of Arizona and also co-manages Aquila Tax-Free Fund for Utah and Aquila Churchill Tax-Free Fund of Kentucky. Joining Mr. Tanner on the panel were Grant Dewey, Head of Municipal Capital Markets at Build America Mutual, and David Hammer, Head of Municipal Bond Portfolio Management at PIMCO.

We hope you find the program informative.

Shares of the Funds may only be sold by offering the Funds’ Prospectus. 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.

10/29/2020

Estimated Capital Gain Distributions as of October 31, 2020

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The funds listed below may pay a capital gain distribution in December, 2020. The amount reflected represents a preliminary estimate as of the date indicated, and is based on information available as of October 31, 2020. Estimates are subject to change based on a number of factors, including changes in the number of shares outstanding, certain tax adjustments, market conditions, board approvals, and other circumstances. These factors may also result in year-end distributions being made by funds which show no estimate as of the date of this report. The amount and character of distributions will be finalized on the record dates.

Aquila Distributors LLC does not provide accounting, tax or legal advice. Shareholders should seek tax advice based upon their particular situation.

Aquila Three Peaks Opportunity Growth Fund: In the event that capital gains distributions are declared, the Fund is anticipated to have a record date of December 2, 2020, an ex-date of December 3, 2020, a payable date of December 3, 2020, and a reinvestment date of December 3, 2020.

Hawaiian Tax-Free Trust and all other Funds: In the event that capital gains distributions are declared, the funds are anticipated to have a record date of December 29, 2020, an ex-date of December 30, 2020, a payable date of December 30, 2020, and a reinvestment date of December 30, 2020.

Although the following funds could pay capital gains distributions in December, 2020, as of the date of this report, a capital gain distribution is not anticipated.

Aquila Tax-Free Trust of Arizona
Aquila Tax-Free Fund of Colorado
Aquila Churchill Tax-Free Fund of Kentucky
Aquila Narragansett Tax-Free Income Fund (RI)
Aquila Tax-Free Trust of Oregon
Aquila Tax-Free Fund For Utah
Aquila Three Peaks High Income Fund

Printable Version

1 Represents undistributed realized gains from fiscal year 2020 which must be distributed in 2020 and cannot be reduced.

Shares of the Funds may only be sold by offering the Funds’ Prospectus. 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 from your financial advisor, and when you call 800-437-1020 or visit www.aquilafunds.com.