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 10-year 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 a number of 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 a 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.

 

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.

11/03/2020

Updates and Perspectives: The Arizona Economic and Pandemic Recovery

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Arizona recently reported an unemployment rate of 6.7% in September, adding 30,200 more jobs. While it was an increase from the 5.9% rate reported in August, the uptick was fueled by an increase of 150,000 in job seekers entering the labor pool. This jump was attributed to the quickly recovering state economy that offered motivation and hope for those who had lost jobs when the state economy was “furloughed” in April.

The reopening of the economy following the end of Governor Ducey’s shelter at home mandate has helped drive the unemployment rate down almost 40% from a 10.7% rate in July. Arizona now boasts an unemployment rate well below the overall US rate reported in September of 7.9%. Impressively, only two states larger than Arizona (Virginia and Georgia) reported a lower unemployment rate (6.2% and 6.4%, respectively) in September.

Payrolls Protected are the Key

Arizona’s economic recovery from the Coronavirus pandemic accelerated dramatically in the past quarter.

Most encouraging has been the resilience of overall employment levels in the state. The employment base is the lifeblood of the State economy and can be a significant proxy for the health of the state and local government finances. Maintaining employment levels translates to jobs kept, household incomes maintained, income and sales taxes paid, and tax bases sustained.

From August 2019 – August 2020 employment in the state declined only -3.2%, ranking 4th lowest in the nation and the best among any state of its size or smaller. This deterioration in the employment base was less than half the U.S. average of -7.0% for this period.

This is especially impressive when considered within the context of the largest states. Arizona is currently the 14th most populous state. Among the thirteen larger states by population, only three (also “sunbelt states”) retained a higher share of jobs than the national average:

 

Fiscal Stimulus: Everyone Benefits When Small Business Wins

Arizona is seeing the massive injection of fiscal stimulus weave its way into the economy. The Payroll Protection Program (PPP) Loans have been one of the main contributors to economic stability to towns and local governments in Arizona. According to SBA figures, over $8.6 billion of PPP loans have been made to 81,000 recipients in Arizona, potentially saving over 750,000 jobs statewide. This encompasses a broad swath of industries, businesses, and organizations throughout the State.

Almost 70,000 such loans were for less than $150,000. This was a critical component of Arizona’s employment resilience as small businesses are an especially prominent engine of the Arizona economy. The massive fiscal response of the Federal government to the Coronavirus Pandemic, and its implementation at the state and local level, helped employment at small businesses rebound dramatically.

When widespread lockdowns of state economies took place last April, employment at small businesses with 49 or fewer employees experienced a decline that was three times that of larger companies with over 500 employees. But by the end of September, after the sizeable fiscal relief was targeted to small business, employment of those small employers had shown the largest recovery:

Read more “Updates and Perspectives: The Arizona Economic and Pandemic Recovery”

10/29/2020

Colorado Local Bond Measure Election Analysis

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This year Colorado voters will be presented with approximately 1.5 billion in K-12 municipal issuance and mill levy overrides in 20 school districts, as well as Amendment B, a statewide ballot measure that would repeal the Gallagher Amendment, and Proposition 116 to reduce the state income tax rate. The Gallagher Amendment is a constitutional limit to the amount of property tax revenue Colorado residential property owners pay, currently 45%, compared to the 55% nonresidential property owners pay of the overall property tax revenue.

See Portfolio Manager Chris Johns’ comments on the Gallagher Amendment in a recent article  published in the Denver Post.

Property tax revenue supports public schools, county governments, special districts and municipal governments. The residential assessment rate is currently 7.15% for residential properties and fixed at 29% for nonresidential properties. A repeal of the Gallagher Amendment will keep the residential assessment rate at 7.15% for residential properties and will eliminate projected future reductions in the residential assessment rate, which could result in higher property taxes for residential taxpayers in the future. Proposition 116 is a statewide ballot issue that would reduce the state income tax rate from 4.63% to 4.55%. The passage of Proposition 116 could reduce state income tax revenue by $154 million in fiscal year 2021-22.

School Bond Issues

Unlike at the state level, where Colorado has experienced difficulty in passing tax increases, voters have historically shown a willingness to approve local bond issues. These measures are used to finance new schools and other capital improvements throughout the state. School district bond issues on the November ballot range in size from approximately $220,000 to as much as $795 million.

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.

10/07/2020

Credit Research & The Risk of Unplanned Events

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With wildfires consuming significant portions of western states, hurricanes impacting the Gulf and East Coast, and droughts and floods in-between, it is evident that climate risk and natural disasters have become an important consideration for investors.

These events are occurring with increasing frequency, and on larger scales. As a result, urban areas where large and typically higher rated municipal bond issuers are located have seen an increased risk of damage, which is only expected to grow.

As a municipal bond fund manager, knowing we can’t change the unpredictable nature of these events, we focus our credit research on finding municipal bond issuers that we believe are better prepared to withstand the financial challenges these events may pose.

Hurricanes, fires, floods, and other disasters present municipal bond issuers with a variety of risks including population declines threatening property tax revenues, revenue loss and increased operation and maintenance costs to maintain infrastructure.

Management of Aquila’s seven single-state municipal bond funds begins with the assessment of risk.

Although disclosure of natural disaster and climate related risks by municipalities remains minimal, we are able to focus our credit research efforts on examining the ability of local governments to respond to unforeseen incidents through a variety of criteria including: fund balance levels and policies, liquidity metrics, debt metrics and debt management policies, pension funding and other post-employment benefits exposure, and reviewing revenue concentrations.

Our credit reviews are performed with awareness of climate challenges faced by issuers, and prior occurrence of natural disasters, and we monitor holdings regularly for developments. Our local surveillance is one of the critical components of our process and includes a review of individual credit reports by our credit committees, which typically meet on a quarterly basis, and have been convening more frequently since the onset of COVID-19.

Although there are many differences between the global pandemic and the wildfires burning across the western states, both events were unforeseen and both have the potential to have an acute impact on local government finances. In this era of pandemics, pension crisis and various climate related threats, we believe credit research is more important than ever.

 

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

Mutual fund investing involves risk. Loss of principle is possible. Investments in bonds may decline in value due to rising interest rates, a real or perceived the chronic decline in credit quality of the issuer, borrower, counterparty or collateral, adverse tax or legislative changes, court decisions, market or economic conditions. Fund performance could be more volatile than that of funds with greater geographic diversification.

08/12/2020

Pandemic Pressure on the Higher Education Sector in Colorado

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The COVID-19 pandemic has caused the learning environment in Colorado’s higher education institutions to change dramatically. Students were forced to end the spring 2020 semester learning virtually, and Colorado universities plan on opening the fall 2020 semester learning on campus along with a hybrid approach of on campus and virtual learning.

According to Standard & Poor’s (S&P), “the COVID-19 pandemic and related economic and financial impacts exacerbate pressures already facing colleges and universities.” S&P’s ratings outlook has been negative for three straight years in the U.S. not-for-profit higher education sector. Moody’s lowered its rating outlook to negative for the higher education sector on March 18, 2020 due to “unprecedented enrollment uncertainty.”

To balance Colorado’s $3 billion revenue shortfall for its fiscal year 2020-21 budget, the state cut its support to the Department of Higher Education’s fiscal year 2020-21 budget by $493 million. However, the governor allocated $450 million from the Coronavirus Aid, Relief and Economic Stimulus Act (CARES) to the state’s public colleges and universities to help minimize the budget cuts.

Enrollment increased at most of Colorado’s universities in fiscal year 2020, but COVID-19 continues to present uncertainty for the fall semester. A resurgence of COVID-19 could reduce future enrollment at Colorado universities and impact revenues, as expenses increase due to a shift to an online learning environment. Currently, none of Colorado’s public universities have plans to raise tuition for fiscal year 2021.

Every institution of public higher education in Colorado was affected by the reduction in state funding. Public higher education institutions have instituted furloughs, hiring freezes, layoffs and other cost cutting strategies The one-time CARES support will soften the blow for fiscal year 2021, but fiscal year 2022 could be challenging if enrollments decline and state aid is further reduced. Currently, there are no plans for additional federal support to higher education institutions. The chart below demonstrates the current Fund holdings of higher education bonds and the amount of state aid reduction and CARES support received.

Higher education institutions represented 16% of Aquila Tax-Free Fund of Colorado’s portfolio as of June 30, 2020. Of this amount, almost 75% of the higher education bonds are insured, pre-refunded or part of the state’s intercept program, which makes debt service payments if the public higher education institution is unable. We will continue to monitor the Fund’s higher education portfolio holdings and their ability to withstand any potential uncertainty with a resurgence of COVID-19 and any future state aid reductions.

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

Information regarding holdings is subject to change and is not necessarily representative of the entire portfolio.

Mutual fund investing involves risk; loss of principal is possible. Investments in bonds may decline in value due to rising interest rates, a real or perceived decline in credit quality of the issuer, borrower, counterparty, or collateral, adverse tax or legislative changes, court decisions, market or economic conditions. Fund performance could be more volatile than that of funds with greater geographic diversification.

06/10/2020

Tony Tanner, CFA® on Money Life with Chuck Jaffe

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Tony Tanner

Tony Tanner

Tony Tanner, CFA®, Municipal Bond Fund Portfolio Manager with Aquila Group of Funds, was recently interviewed on Money Life with Chuck Jaffe.

During their conversation, Tony discussed how the troubled economy and lower interest rates will impact the bond market and may lead investors to diversify their fixed-income holdings. He notes that while he doesn’t anticipate a big wave of municipal defaults, credit-quality will be challenged.

Chuck Jaffe is a veteran financial journalist and nationally syndicated financial columnist whose work appears in newspapers from coast to coast. He started the Money Life podcast in 2012, and previously hosted Your Money and various podcasts for MarketWatch, where he was a senior columnist.

We hope you enjoy the interview.

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