For our 35th anniversary series, Aquila Tax-Free Fund of Colorado and Aquila Tax-Free Trust of Oregon portfolio manager Chris Johns talks about persistence, the value of knowing your investors, and why he still finds the municipal bond market so fascinating.
You’ve been involved with Aquila Tax-Free Fund of Colorado since its inception, correct?
Yes. In 1985 the United Bank of Denver—the initial sub-adviser for the Fund—was approached by Aquila founder Lacy Herrmann about starting a state-specific municipal bond fund for Colorado. As the bank’s bond expert, I was assigned to the project. The proposal got as far as senior management of the bank, who declined.
One year later Lacy approached us again. A few things had changed on the bank’s side to make the idea more attractive and this time management approved it. Through Aquila’s persistence, the fund got off the ground.
As a portfolio manager, is there anything you do that sets you apart?
Aquila Group of Funds portfolio managers visit with financial advisers. I do, both in Colorado and in Oregon. It’s a bit unusual in our industry. Advisors like having that access and the ability to hear straight from us. To them, it’s a real benefit.
That helps you better manage the fund?
Yes, in terms of understanding the investor’s perspective. We’re often asked by advisers to present our strategy to their clients. Talking to advisers and investors gives you a very good sense of what’s on their minds—their concerns about bonds, interest rates, the general economic landscape.
These conversations help me address those concerns and align the funds’ risk profiles with those of our investors. We know who our investors are and have something to measure against.
Why couldn’t savvy investors or advisers manage municipal bonds themselves?
The rapidly changing condition of municipal issuers that we’ve seen since 2008 still puts a premium on the in-depth research we do. We’re continually monitoring the health of bond issuers. It’s possible that the bond you bought five years ago might have deteriorating credit quality today, which you wouldn’t know without research. The value of our research alone is worth the price of admission so to speak.
Today, information on corporate bonds and stocks is available at the push of a button. Not so with muni bonds, whose issuers publish one audited financial statement annually that becomes public six months after the end of the fiscal year. It would be very hard for investors to manage a muni bond portfolio using just these statements, whereas our relationships with bond issuers help us get at the information we need.
We’re also active managers, applying our expertise every day in managing the portfolio as interest rates change and the various bond sectors react. Most investors and advisers don’t have the expertise and information to do this themselves.
How does your research measure up to the big fund companies on the East and West coasts?
We invest in our back yard and we know it very well. Particularly in Colorado, where there are no state general obligation bonds but a lot of smaller issuers instead, research can be onerous for a fund manager. Larger muni bond funds generally won’t take the time to research these smaller issuers because these bonds aren’t a meaningful investment as a percentage of their overall portfolios, whereas we focus intensely even on these smaller, thinly-traded securities.
What was your path to this career?
I was very lucky. The University of Cincinnati, which I attended, has a Division of Professional Practices, a program that supplies companies with student interns.
As a finance major participating in that program, my first assignment was at a bank in Toledo, Ohio in their trust and investments department. By the time I graduated I’d been there for six quarters, and that’s where I landed a job. I loved it from the start.
What’s the best part about your work?
The municipal bond market itself. Most of our trades are over-the-counter: each trade is unique, so we negotiate them all. It demands conversations between people—completely unlike the other capital markets, where everything is electronic. I find it fascinating.
I also enjoy analyzing the structure of bonds. And I take pride in their ultimate use. I believe we’re providing a social good through the investments in Colorado and Oregon that are paid for by our municipal bonds.
It’s also great to be doing this with Aquila. We get to meet investors and advisers, and their confidence in us only further sharpens our resolve to do the right thing for them. Aquila’s senior management shares this focus on advisers and their clients, and has from its beginning. We’re all stakeholders in what we believe is most important: our shareholder’s best interests.
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 here, from your financial adviser, or by calling 800-437-1020.