06/21/2017

Tax Reform 2017 – what does it mean for tax-exempt investments?

by

While the current tax reform proposal by the White House lacks details, the outline released does include several items meaningful to the individual tax payer:

  • Reduction of the current seven tax brackets to three: 10%, 25% and 35%. However, the proposal does not indicate the levels of income for each bracket.
  • Deductions would change: the standard deduction would be nearly doubled to $24,000. Itemized deductions would be capped at $100,000 for single filers and $200,000 for married couples filing jointly. Tax breaks for charitable giving, mortgage interest and retirement savings would remain, however, the administration would like to eliminate the deduction for state and local taxes (SALT), which is one of the largest federal tax expenditures.
  • The administration would also like to end the Alternative Minimum Tax (AMT) and eliminate the 3.8% Net Income Investment Tax (NIIT) which applies to investment income of taxpayers with a modified adjust gross income (MAGI) of more than $200,000 for single filers and $250,000 for married couples filing jointly. This would bring the capital gains rate down for high earners from 23.8% to 20%

The proposal is still in its initial stages and will likely have many changes prior to enactment. There are questions as to whether the proposal could influence the municipal bond market and the value of tax-free investing. The following charts display the current federal tax brackets and the initially proposed tax brackets using a hypothetical taxable investment yielding 3% to illustrate Taxable Equivalent Yields.

  

The benefit of tax-exempt income remains, even at the proposed tax rates, although it is reduced slightly by the lower tax brackets. Tax-exempt income continues to provide a significant incentive to consider municipal bonds as an alternative to taxable income investments, particularly for the higher income taxpayer.

*Current taxable equivalent yields are based on 2017 federal tax rates and do not include the 3.8% NIIT where applicable.

These are hypothetical illustrations and do not represent an actual investment, interest rate or return on any investment.

06/14/2017

Active and Passive Management: A Blended Approach

by

A 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”

05/26/2017

Oregon Local Bond Measure Election Results

by

Local bond measures won at Oregon’s May 16, 2017 special election. Although results have yet to be certified, and are therefore still preliminary, $1.5 billion of general obligation bonds were approved by voters across the State. By election measure, 62% of the issues were approved; however 83% of the total requested par amount was approved. For a special election, these results compare favorably with the November 2016 general election, which approved $1.76 billion of issuance. Oregon typically sees more ballot measures during general elections, which are held in November of even-numbered years. However, even the 2014 general election only produced $615 million of potential new supply to the bond market.

In 2008, Oregon voters approved Ballot Measure 56 which repealed a law requiring more than 50% of a county’s registered voters to vote in bond measure elections held in May and November. This has benefitted local governments with bond measures and local citizens supporting those measures. According to election results compiled by the Oregon Secretary of State, no Oregon counties received more than 50% of ballots from eligible voters. Josephine County had Oregon’s highest voter turnout this election, with 46.36% of registered voters casting ballots. The County’s large turnout was largely attributed to several local option levies including a public safety levy which was approved following 5 separate failed attempts at elections from 2012 to 2016.

Oregon chart 1

Source: Kirkpatrick Pettis Capital Management and various Oregon County Clerks.

The majority of the bonds approved were for school districts making capital improvements to existing facilities and constructing new facilities to accommodate enrollment growth. School district’s accounted for over 90% of the total requested amount and over 70% by number of measures. Most notably, Portland Public Schools passed its $790 million construction bonds, which is the largest bond any local government has placed on a ballot in Oregon history. Overall, this election should provide a substantial amount of supply to the bond market, particularly following the success at the November 2016 general election. Collectively, the elections approved over $3.26 billion of new bonds, with many of these issues of acceptable size and credit quality for the portfolio.

Source: Kirkpatrick Pettis Capital Management and various Oregon County Clerks.

Source: Kirkpatrick Pettis Capital Management and various Oregon County Clerks.

Voters also appear to be less price-conscious, given the high percentage of measures passed with relatively high taxes rates. Of the measures presented with estimated tax rates over $1.00 per $1,000 of assessed value, 75% were approved and both measures over $2.00 were approved. However, certain governments continue to face opposition. Mt. Hood Community College’s $75 million issue to build a new technology center and seismically upgrade campus buildings was defeated by 57% of voters. This marks Mt. Hood’s sixth defeat for a bond since 1974.

Nevertheless, given the success of recent elections, local governments are already making plans for the November 2017 election. In a unanimous vote, the Hillsboro School District board approved a plan to present a $408 million capital construction bond on the November ballot. The District is issuing the bonds to finance capital construction related to an anticipated 2,000 new students expected to move into the District over the next several years.

Timothy Iltz
Vice President, Municipal Bond Analyst
Kirkpatrick Pettis Captial Management

05/19/2017

Diana Herrmann discusses Fund strategy with Providence Business News

by

Following the recent 25th annual shareholder meeting of Aquila Narragansett Tax-Free Income Fund, Diana Herrmann, President of the Fund and CEO of Aquila Investment Management LLC, was interviewed by Providence Business News.  During the interview, Ms. Herrmann discussed the important role the Fund has played in supporting economic and infrastructure development in Rhode Island, and in providing Rhode Island residents with income exempt from both state and federal income tax.

Ms. Herrmann pointed out that “Aquila Narragansett Tax-Free Income Fund has financed major Rhode Island projects such as the enhancement of T.F. Green Airport and the construction of the Rhode Island Convention Center, Women & Infants Hospital, the University of Rhode Island’s Ryan Center and Bradford Boss Ice Arena, as well as local projects involving Rhode Island’s other colleges and universities (such as Brown University, Bryant University, Johnson & Wales University, New England Institute of Technology and Providence College) and clean water projects throughout the state”.

You’ll find the full interview on the Providence Business News site.

Shares of the Fund may only be sold by offering the Fund’s 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.

05/15/2017

Liz Claman interviews Aquila fund manager

by

Fox Business Network anchor, Liz Claman, recently interviewed Chris Johns, Portfolio Manager of Aquila Tax-Free Fund of Colorado and Aquila Tax-Free Trust of Oregon, for Asset TV, regarding activity in the municipal bond market since the 2016 election and key aspects of the Aquila state municipal bond fund strategy in the current market environment.


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.

If you experience difficulty viewing this video on your equipment, you may also view it by registering (at no cost) on the Asset TV site.

05/04/2017

Aquila Municipal Bond Funds Continue to Avoid Puerto Rico Debt

by

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.

Yesterday Puerto Rico officially requested to enter bankruptcy to restructure roughly $70 billion in outstanding municipal bond debt. The restructuring will be the largest in the history of the US municipal bond market and signals the start of a long legal battle between the government and its creditors. 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.

04/20/2017

Aquila Tax-Free Fund of Colorado Annual Shareholder Meeting

by

Shareholders of Aquila Tax-Free Fund of Colorado are cordially invited to attend their annual shareholder meeting Wednesday, May 17, 2017 at 2:00 p.m. at the Wellshire Event Center, Cambridge Room, 3333 S. Colorado Blvd., Denver, Colorado. Light refreshments will be served prior to the meeting.

Attendees will have the opportunity to visit with Fund Executives, Trustees, the Portfolio Manager and hear Tom Binnings, Senior Partner of Summit Economics LLC, an applied economics research and consulting firm. Mr. Binning has more than 35 years of experience in project management, economic and market research, business start-ups and turnarounds, real estate development, business analytics, public policy, and strategic planning. Mr. Binnings will speak about the Colorado and national economy.

Please plan to attend. We look forward to seeing you on May 17.

04/19/2017

Aquila Tax-Free Trust of Oregon Annual Shareholder Meeting

by

Shareholders of Aquila Tax-Free Trust of Oregon are cordially invited to attend their annual shareholder meeting Thursday, May 11, 2017 at 11:00 a.m. at the Oregon Convention Center, Meeting Rooms F150-151, 777 NE Martin Luther King Jr. Blvd., Portland, Oregon. Light refreshments will be served prior to the meeting and parking will be validated at the end of the meeting.

Those unable to attend the Portland meeting may be interested in attending a special outreach informational meeting in Eugene at 2:00 p.m. on Wednesday, May 10, 2017. That meeting will take place at the Valley River Inn, North & Middle Columbia Ballrooms, 1000 Valley River Way, Eugene, Oregon. Light refreshments will also be served prior to the meeting.

Attendees to both meetings will have the opportunity to visit with Fund Executives, Trustees, the Portfolio Manager and hear renowned Oregon economist and Trustee, John Mitchell, speak about the Oregon and national economy. Mr. Mitchell is principal of M & H Economic Consultants of Portland. He is a past chairman of the Oregon Council of Economic Advisors, and former chief economist of U.S. Bancorp.

Please plan to attend one of these meetings. We look forward to seeing you in either Portland or Eugene.

04/19/2017

Aquila Narragansett Tax-Free Income Fund Annual Shareholder Meeting

by

Shareholders of Aquila Narragansett Tax-Free Income Fund are cordially invited to attend their annual shareholder meeting Wednesday, April 26, 2017 at 9:00 a.m. at the Rhode Island Convention Center, Room 555, One Sabin Street, Providence, Rhode Island. 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 Lara Salamano, Chief Marketing Officer of the Rhode Island Commerce Corporation, speak about the impact it has on the Rhode Island economy.

Ms. Salamano, a graduate of the University of Rhode Island, is leading a coordinated statewide marketing campaign to bring more tourists and businesses to Rhode Island.

Please plan to attend. We look forward to seeing you on April 26.

04/19/2017

Aquila Churchill Tax-Free Fund of Kentucky Annual Shareholder Meeting

by

Shareholders of Aquila Churchill Tax-Free Fund of Kentucky are cordially invited to attend their annual shareholder meeting Thursday, April 20, 2017 at 8:30 a.m. in the Papa John’s Cardinal Stadium, Brown & Williamson Club, University of Louisville, 2800 South Floyd Street, Louisville, KY. 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 Ryan Barrow, Executive Director of the Kentucky Finance and Administration Cabinet, which is part of the Office of Financial Management. The Office is responsible for the investment and debt management functions of the Commonwealth, including conducting the state’s bond sales, which provide financing for major projects such as those in which your fund invests. Mr. Barrow was named one of 40 rising stars by Bond Buyer last year.

Please plan to attend.  We look forward to seeing you on April 20.