Active and Passive Management: A Blended Approach


Building BlocksA heightened focus regarding fees and investor protection has generated an increased number of headlines around the decades-old debate between active and passive fund management. Historically, investors have viewed the two theories of management as one-verses-the-other, and many investors have been known to fluctuate between the two based on which style is in favor; in recent years, the trend has tilted toward passive management. Lower volatility, monetary policy and economic recovery have made it more difficult for active managers to consistently beat their benchmarks. However, history tells us that when passive management becomes oversaturated, the pendulum often swings back toward active. While we don’t anticipate a major shift away from passive, there are attractive aspects of active management that should be considered – and we believe that a combination of both styles creates a strong and timeless portfolio.

The shift to passive fund management

Investing in passive mutual funds is unquestionably a way to reduce investment fees that can drag on fund performance while maintaining exposure to a wide variety of investment styles. Fee-conscious investors, Financial Advisors and Broker Dealers are all embracing the idea of balancing less active portfolio management and research against the potential of earning benchmark returns from simply tracking the overall market.

Passive funds are particularly attractive in areas where markets are extremely efficient, where information is readily available, and where the ability to uncover opportunities to beat the market is rare. Take the U.S. large-capitalization segment for example; only 5% of portfolio managers in that segment who beat their index for three consecutive years also beat their index the following three years, according to S&P Dow Jones Indices*. Passive funds can also be an attractive tax-efficient investment; particularly those that track more narrowly focused benchmarks.

Overall, the mutual fund industry has benefited from the increase in the number of passive funds. Low-cost providers have driven down the cost of active funds, while sharpening the focus of active managers on performance and fund expenses.

Do investors still benefit from active management?

We think so. While passive funds may be attractive from a fee and tax-efficient standpoint, they do have drawbacks. Markets have inefficiencies, which passive managers cannot exploit. Managers following an index lack the ability to make adjustments based on market conditions and research discoveries. For instance, active managers can judge when to raise cash levels, in order to reduce potential downside exposure, when markets react to external events. Active managers also have the ability to weight holdings according to where they see value, while most passive approaches are weighted to align with the chosen index, for instance by market capitalization – giving more exposure to well-established companies that may have less growth potential.

Read more “Active and Passive Management: A Blended Approach”


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”


Aquila Three Peaks High Income Fund Recognized as a Category King


Aquila Three Peaks High Income Fund was included in a Category Kings report by The Wall Street Journal for the one-year period ending March 31, 2016. The Category Kings report recognizes the top 10 performing funds, based on total return, in 16 Lipper categories for the one-year period. Aquila Three Peaks High Income Fund class Y (ATPYX) was listed at #6 in the Lipper High Yield Taxable category, out of 646 taxable high yield funds. During this period, the Fund generated a total return of 3.13%, compared to the Lipper High Yield Taxable category average of -4.03%, and the Barclays US Corporate High Yield Index Return of -3.69%.

We believe our relatively defensive positioning within the high yield market in recent years, with a focus on higher-quality names and lower-duration securities within those names, has been prudent, and as a result has produced relatively stable performance within the high yield asset class.

We remain focused on evaluating high yield issuers based on our fundamental research process in which we look for companies that are improving their balance sheets and growing their businesses in a disciplined manner. We believe our focus on providing a less volatile investment strategy within the high yield asset class is judicious given the potential for elevated volatility in this relatively low-yielding fixed-income environment.

Read more “Aquila Three Peaks High Income Fund Recognized as a Category King”


Aquila Manager Discusses High Yield Bond Market


Aquila Three Peaks High Income Fund co-portfolio manager, Sandy Rufenacht, was interviewed recently on CNBC following several turbulent days of trading in the US high yield corporate bond market. He discussed the widening of high yield spreads that had been occurring for some time, the range of performance across quality rating categories within the high yield asset class, and technical pressure on high yield names brought about by trading in ETFs.

Listen to the full interview.

Aquila Three Peaks High Income Fund co-portfolio manager, Sandy Rufenacht

 © 2015 CNBC/Dow Jones Business Video. All Rights Reserved.


Sandy Rufenacht was also among a number of industry professionals quoted by Reuters on the day the Fed implemented the 25 basis point rate increase.

Before investing in one of the Aquila Group of Funds, 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 advisor, or by calling 800-437-1020


Barron’s Profiles Co-Portfolio Manager Sandy Rufenacht


Barron’s profiled the co-portfolio manager of Aquila Three Peaks Opportunity Growth Fund and Aquila Three Peaks High Income Fund, Sandy Rufenacht, in its November 16, 2015 issue in an article by Reshma Kapadia titled “Two for the Money.”

Sandy Rufenacht Co-Portfolio Manager

Sandy Rufenacht
Co-Portfolio Manager

The distinctive research and investment approach implemented in managing both funds is described as originating with intensive debt analysis while gathering detailed information about a company, often from unconventional sources. Other elements of the research and strategy include developing an understanding of free cash flow and debt covenants.

Spend some time reading the Barron’s article to gain a perspective on the strategies of the two funds, and see the Investment Process Summary for both funds.

For the most recent quarter-end performance, see the Aquila Three Peaks High Income Fund Fact Sheet and the Aquila Three Peaks Opportunity Growth Fund Fact Sheet.

Before investing in one of the Aquila Group of Funds, 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 advisor, or by calling 800-437-1020.


Active Fund Management for Bond Investors


A Wall Street Journal article, published February 8, 2015, listed a number of circumstances in which it might be more beneficial to take advantage of active fund management rather than passive fund management tied to an index.  One circumstance on that list was investing in bonds.

Periods of rising rates are challenging for bond investors, and a bond fund portfolio aligned with a bond index may be along for the ride when rising rates, and correspondingly declining bond values, impact the market.  That is because an index fund, by design, will be aligned with the composition of the overall bond market, or a sector of the bond market, and therefore subject to comparable rate-sensitivity.

Active bond fund managers have the ability to take steps in an effort 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 in order to adjust fund holdings based on market expectations.  Read more “Active Fund Management for Bond Investors”


Capital Gain Distribution Estimates – 2014


In the event that 2014 capital gain distributions are declared, the funds are anticipated to have a record date of December 30, 2014, an ex-date of December 31, 2014, a payable date of December 31, 2014, and a reinvestment date of December 31, 2014.

Estimates are subject to change depending on market conditions, board approvals, and other circumstances. This report is the result of estimates and is based on information available as of October 31, 2014. The amount and character of distributions cannot be determined until the anticipated record dates.

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.


For Equity Growth, Rufenacht Seeks the Fiscally Responsible


If the equity markets have had a nice run since 2009, it’s been even better for Aquila Three Peaks Opportunity Growth Fund. For the five-year period ending on June 30, the S&P 500 Index returned a cumulative 120% while Aquila Three Peaks Opportunity Growth Fund had a cumulative total return of 148% based on the public offering price. The annualized total return over the period placed the Fund in the top 21% of its Lipper Mid-Cap Core category. We recently spoke with the fund’s co-portfolio manager Sandy Rufenacht about fiscally responsible companies, how long the equity bull market might last, and his unique approach to stock investing that incorporates his expertise in the high yield bond market.

Would you give us an overview of the fund?

It’s an equity fund that seeks growth by investing in what we believe to be the most fiscally responsible publicly-traded companies that are making positive balance sheet actions.

We’re looking for the same kinds of companies we seek in our companion strategy, the Aquila Three Peaks High Income Fund:  companies demonstrating their fiscal responsibility by paying down debt and generating the free cash flow to do so—cash flow that ideally is earmarked for debt paydown through covenants. Read more “For Equity Growth, Rufenacht Seeks the Fiscally Responsible”


Welcome to the new Aquila Group of Funds web site


You will see a number of enhancements and changes as you explore the new site.  Navigation has been simplified so that you can easily find the information you need, along with news and updates on our investment strategies.  We’ve also freshened the appearance of the Aquila Group of Funds brand, implementing the new look across the web site and all documents available on the site.  Be sure to see A Careful Approach for Today’s Markets which describes our overall investment philosophy, and the Aquila Group of Funds Guiding Principles. Read more “Welcome to the new Aquila Group of Funds web site”


Mutual Funds and Yield Calculations


The rate of income provided by a bond fund is affected by several variables and may be calculated in a number of ways.

Investors looking for an income-producing investment may choose a mutual fund which invests in bonds. There are a number of distinctions between bond funds which should be considered, one of which is the rate of income provided.

Fund Holdings and the Markets Change Daily

A mutual fund is a collection of many individual securities in which a number of individual investors share ownership. The investment manager of a bond fund may continually buy and sell individual securities as money flows into, or out of, the mutual fund, and as individual securities become more or less attractive based on the objectives of the fund and changes in the securities markets. Read more “Mutual Funds and Yield Calculations”