On November 5, 2019, Colorado voters will decide on approximately $1.2 billion of K-12 municipal issuance and mill levy overrides in 20 local elections, as well as Proposition CC, a statewide ballot measure that would end the cap on state tax revenue as required by the Taxpayer’s Bill of Rights (TABOR). TABOR is a constitutional limit to the amount of revenue that Colorado and local governments are able to retain and spend or save. Excess revenue collected over the TABOR limit must be refunded to taxpayers unless voters authorize retention of the excess amount.
Historically, the State has experienced difficulty passing funding for K-12 public schools and transportation projects. As a result, the State is requesting voters approve Proposition CC, which permits excess revenue to be distributed to public schools, higher education, roads, bridges and transit beginning in fiscal year 2019-20.This strategy has recently been successful at the local level, with Colorado cities exercising similar strategies to spend TABOR funds. If the measure passes, the increases in funding may benefit our holdings of public school, higher education and transportation bonds. However, TABOR funding is unpredictable and, therefore, difficult to budget. The Colorado Legislative Council Staff projects revenue exceeding the TABOR limit will be $428.5 million in 2019, $264.3 million in 2020 and $142.9 million in 2021.
Unlike at the State level, Colorado 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 $2.5 million to as much as $395 million. Depending upon voter sentiment, this election could potentially provide the Aquila Tax-Free Fund of Colorado with a broad opportunity to invest in a variety of projects as bonds are sold later this year and into 2020.
Tony Tanner, CFA®, SVP, of Aquila Investment Management and Lead Portfolio Manager of Aquila Tax-Free Trust of Arizona, recently participated in a Fixed Income Masterclass panel for Asset TV. Co-panelists were Christian Pariseault, Head of Fixed Income and Global Asset Allocation Institutional Portfolio Managers at Fidelity Investments, Colleen Denzler, investor at Smith Capital Investors, and Nolan Anderson, Fixed Income Portfolio Manager at Weitz Investment Management.
Tony discusses current opportunities presented by the inclusion of tax-exempt fixed income in a bond allocation, the localized nature of the municipal bond market, the continuing double tax-free advantage of single-state municipal investing, the primary risk and return characteristics of fixed income that investors should balance, and the benefits of leveraging professional management in accessing the municipal bond market.
In addition to Tony’s comments on the municipal market, Colleen, Nolan and Christian and Tony provide perspective on the global economic environment, current market volatility and conditions in the broader fixed income market.
The full program linked above provides CE Credit. We hope you find the program informative.
You’ll find additional information regarding Aquila Tax-Free Trust of Arizona on this site, along with the Fund prospectus.
Shareholders of Aquila Tax-Free Trust of Arizona are cordially invited to attend their Annual Shareholder Meeting on Wednesday, October 30, 2019 at 9:30 a.m. at the Arizona Biltmore Hotel, 2400 East Missouri Avenue, Phoenix, AZ 85016. Breakfast will be served prior to the meeting.
Attendees at the meeting will have the opportunity to visit with Fund Executives, Trustees and the Portfolio Manager.
This year we welcome special guest speaker Dennis L. Hoffman, Director of the L. William Seidman Research Institute, Director of the Office of the University Economist, and Professor of Economics at Arizona State University. Mr. Hoffman will speak on the evolution of Arizona’s 21st century economy.
Please plan to attend a meeting. We look forward to seeing you.
The art and practice of picking individual municipal bonds can be a lot like picking apples. Finding great values or a real gem is primarily a function of market conditions and variety. If one has a discerning taste in apples they are more likely to encounter a wider variety of in season, locally grown apples at a farmers market rather than at Costco. With municipals, it’s always easier to obtain value when there is wide variety of both the types of bonds available and sellers willing to trade.
In today’s municipal bond market, demand is strong (not much variety in sellers) and yields are compressed across the yield curve (not much variation among yields), making it more difficult to find a great individual bond value. Combining this with the shift in Fed policy that has moved from tightening to easing in a matter of months, interest rates have been driven lower with a magnitude and speed that has resulted in the market yields of some individual bonds falling much further than the distribution yield of a diversified mutual fund portfolio.
In a market like we are experiencing today, the most attractive municipal bond values may actually be found in established, well diversified municipal bond mutual fund portfolios. This applies to both establishing new exposure to municipal bonds in an asset allocation, and to reinvesting maturity proceeds or making additions to an existing fixed income portfolio.
In comparing the change in intermediate market yields of some individual bonds with the yields of Aquila Tax-Free Trust of Arizona (AZTYX) for example, there is now a substantially larger yield advantage in the Fund. After peaking the first week of November 2018, market yields of individual bonds across the intermediate yield curve have fallen dramatically.
while the SEC 30-Day yield of AZTYX has held up better (please read the Fund prospectus here):
This can be attributed to a couple factors. First, active portfolio management may enable a fund manager to better sustain the portfolio income and dividend of a mutual fund by capitalizing on the opportunities that fluctuating interest rates often present (sort of like having a personal shopper at the muni bond “farmers market”). Second, the market yield and price change of an individual bond is more sensitive to a change in market yields than the yield and price change for a diversified portfolio of bonds.
That is because the average maturity and duration of a portfolio of bonds is not the same as the actual maturity and duration of any one specific bond.
Read more “Cheaper by the Portfolio – The Mutual Fund Value Proposition”
Aquila Three Peaks Opportunity Growth Fund, was once again included in a Wall Street Journal Category Kings report for the year-to-date period ending August 31, 2019. The Category Kings report recognizes the top performing funds, based on total return, in 10 Lipper categories for the year-to-date period. Aquila Three Peaks Opportunity Growth Fund Class Y (ATGYX) was listed at #1 in the Lipper Mid Cap Core equity category, out of 392 funds. During this period, the Fund generated a return of 27.3% compared to the Lipper Mid Cap Core category average of 16.2% and the Russell 3000 Index return of 18.02%. The Fund was also listed as a Category King in May and July; falling in second place and third place, respectively, in the Mid Cap Core category based on the year-to-date return through May 31, 2019 and July 31, 2019.
Read more “Recognized as a Wall Street Journal Category King: Aquila Three Peaks Opportunity Growth Fund”
Shareholders of Hawaiian Tax-Free Trust are cordially invited to attend their Annual Shareholder Meeting on Wednesday, September 25, 2019 at 10:00 a.m. at the Ala Moana Hotel in Honolulu. A continental breakfast will be served prior to the meeting.
Those unable to attend the Honolulu meeting may be interested in attending the special outreach informational meeting in Maui. The meeting will take place at 10:30 a.m. on Tuesday, September 24, 2019 at the Maui Arts & Cultural Center. Lunch will be served at 11:30 a.m.
Attendees at all meetings will have the opportunity to visit with Trust Executives, Trustees, the Portfolio Managers and hear renowned Hawaii economist, Paul H. Brewbaker, Ph.D., Principal of TZ Economics, a Hawai’i economics consultancy. Mr. Brewbaker’s background is in research on the Hawaii economy and financial risk analytics. He has been affiliated with Bank of Hawaii for more than 25 years, concluding as its Chief Economist. Mr. Brewbaker will present an overview of the Hawaii and national economy.
We look forward to seeing you in either Honolulu or Maui.
The Kentucky Legislature ended their July special session Wednesday with a pension bill signed into law, effectively taking small steps toward solving the state’s hefty pension crisis. The bill narrowly passed in the house earlier in the week, but won by a wide margin in the senate on Wednesday. The bill’s objective is to relieve regional universities and quasi-governmental entities from large increases in pension costs that were handed down July 1, 2019.
As Governor Bevin stated in his press conference, the measure will not eliminate pension benefits for workers. It is designed to encourage agencies that exit the system to cap employees’ benefits and move them into 401k-type plans going forward. Although small, we see this as a positive step that will likely lead to more successful legislative solutions down the road.
With the Churchill Tax-Free Fund of Kentucky, we maintain our objective of managing interest rate risk and credit risk while keeping over 90% of the portfolio rated A or higher. We believe that one of the benefits of owning shares in the Fund is having the resources of local portfolio management and credit analysis. We will be monitoring the progress of pension reform in the state, along with the local economic and political environment.
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.
Following are changes to the Contingent Deferred Sales Charge (CDSC) for Aquila Group of Funds’ Municipal Bond Fund Class A Shares.
Effective July 25, 2019, the CDSC time period for Class A Shares will be reduced for single purchases over $250,000, and also reduced when the value of a Class A Shares purchase, combined with the value (based on purchase cost or current net asset value, whichever is higher) of shares of the Fund, or any other Fund in the Aquila Group of Funds, owned by the purchaser, is $250,000 or more.
Aquila Tax-Free Trust of Oregon, Hawaiian Tax-Free Trust, Aquila Tax-Free Fund of Colorado and Aquila Narragansett Tax-Free Income Fund (RI)
Aquila Tax-Free Trust of Arizona, Aquila Churchill Tax-Free Income Fund, and Aquila Tax-Free Fund For Utah
If you have any questions about this change, please contact 800-437-1020.
On June 6, 2019, Sandy Rufenacht, co-portfolio manager of Aquila Three Peaks High Income Fund and Aquila Three Peaks Opportunity Growth Fund, was interviewed on Money Life by Chuck Jaffe.
During their conversation, Sandy touched on the impact politics can have on bond markets particularly during an election cycle, changes in the rate environment, shifting valuations along the credit-quality curve, and much more.
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. The prospectus is available from your financial advisor, and when you call 800-437-1020 or visit www.aquilafunds.com.
Timothy Iltz is Co-Portfolio Manager of Aquila Tax-Free Trust of Oregon
Vice President and Municipal Bond Analyst, Kirkpatrick Pettis Capital Management
The Volcker Alliance, a think tank headed by former Federal Reserve Chairman Paul Volcker, recently released its report, Truth and Integrity in State Budgeting: Preventing the Next Fiscal Crisis. The report covers fiscal years 2016 through 2018 and measures all 50 states in five key budgeting areas: budget forecasting, budget maneuvers, legacy costs, reserve funds, and budget transparency. Each state was given a grade between A and D- for each category and the grades reflect each state’s three-year average for the critical budgeting areas. The report ranked Oregon as one of the top states for managing legacy costs, a measure that evaluates how well states are funding promises made to public employees, including pension funding and health care.
Over the past three years, Oregon has earned an A average for its ability to manage post-employment benefit (OPEB) funding and pension liabilities. The Volcker Alliance reports that Oregon has a public employee pension funded ratio of 83% for 2018, placing the state in the top 6 plans in the nation. Oregon also earned an A average for budget maneuvers, which evaluates whether the state used one-time revenues, borrowings, asset sales, and other measures to achieve short-term budgetary balance. Budget forecasting was the only area where Oregon fell short, with an overall grade of C, which was partially due to the fact that the state does not use consensus revenue forecasts. However, Oregon was noted for its use of multi-year revenue forecasts and revenue growth projections.
In managing the Aquila Tax-Free Trust of Oregon, we maintain a close watch on Oregon’s economy, budget and liabilities, and we are pleased with the results of the Volcker Alliance’s assessment of Oregon’s fiscal health.