Asset TV Interview: Is it a good time to consider municipal bonds?
Aquila Group of Funds portfolio manager, JT Thompson, was interviewed in January, 2017 by Asset TV for a program regarding opportunities in the municipal bond market. Mr. Thompson highlights objectives of the new administration, such as infrastructure spending, tax reform and regulatory reform, and the need for portfolio managers to be nimble in order to take advantage of any opportunities resulting from these initiatives. JT also discussed other key topics of interest to municipal bond investors.
We think you’ll find the interview insightful and informative.
Each Aquila Group of Funds state-specific municipal bond fund in invests in investment grade bonds and maintains an average intermediate portfolio maturity, in order to manage credit and interest rate risk.
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.
Aquila Group of Funds’ seven single state municipal bond funds were recently included in a US News and World Report Best Funds list for Municipal Single State Intermediate Funds.
For over 30 years, we have sought to provide municipal bond fund investors with double tax-exempt income and preservation of capital. We seek to manage interest rate and credit risk by consistently maintaining broadly-diversified, high-quality bond portfolios with an intermediate average maturity.
Our locally based portfolio managers and credit analysts have an up-close perspective on bond issuers and the economy in their states. We believe this gives them valuable insights about the economic and political climate of the state and the financing needs and the capabilities of individual issuers.
The U.S. News Mutual Fund scores assigned to the 65 funds included in the Municipal Single State Intermediate Category is produced using an equal weighting of the overall ratings provided by their data sources (Morningstar, S&P, Lipper Leaders, Zacks, and TheStreet.com ), and was published on 11/22/16. Individual fund rating systems are normalized to a 100-point scale based on point totals assigned to individual scoring systems. For example, each star from Morningstar would receive 20 points. The U.S. News score is calculated by dividing total points awarded according to their system by the five data sources. The Combined U.S. News Mutual Fund Score ranks funds numerically based on the score and funds with identical scores are awarded the same numerical ranking.
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 prospectuses are available on this site, from your financial adviser and when you call 800-437-1020.
Due to the recent outcome of the U.S. Election, and the accompanying expectation of a large infrastructure spending program that could increase inflationary pressures, the municipal market has experienced an increase in municipal yields and a decline in market values. While there is significant uncertainty concerning policy changes that may be implemented by the new administration, there are still overall positive underlying themes to the municipal market that we think investors should keep in mind.
• Interest rate increases tend to reduce the supply of new municipal bond issuance coming to market which helps mitigate supply/demand imbalances.
• Muni bond yields, as a percentage of Treasuries, which are relatively attractive at these levels, have historically encouraged traditional taxable buyers to cross-over into the municipal bond market.
• An increase in the Federal Funds rate had been widely-anticipated by the markets, based on commentary from the Fed, and was likely reflected in recent bond prices. A wide range of economic factors, domestically and globally, will affect the markets’ reaction to the rate increase.
• There have been occasions, over the past 10 years, when the municipal bond market sold off. At some level, buyers were attracted by the values seen in municipal bonds, and the market subsequently rebounded, as illustrated below. This past performance is no guarantee of future results.
We expect market volatility to continue until we get more clarity on President-elect Trump’s policies and his ability to pass the proposals he offered during his campaign through Congress. We have positioned our municipal portfolios in anticipation of higher rates, and with the expectation of potentially being able to take advantage of buying opportunities.
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”
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.
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.
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.
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”
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.
Once 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.