Investors who are seeking high yields now have a “new” option to consider: Oppenheimer Rochester Short Duration High Yield Municipal Fund.
We put “new” inside quotations marks because the fund is “new” in just a few important ways.
- Its name is new, for example. Before June 1, 2017, the fund was known as Oppenheimer Rochester Limited Term Municipal Fund (OPITX).
- Its investment strategy is new, too. On June 1, 2017, the fund changed its investment strategy from a limited term investment-grade muni bond strategy to a short term high yield muni bond strategy. Consistent with the new strategy, the fund has a higher threshold for below-investment-grade securities as a percentage of assets. While Oppenheimer Rochester Limited Term Municipal Fund had a below-investment-grade restriction of 5% of assets at time of purchase, Oppenheimer Rochester Short Duration High Yield Municipal Fund has a below-investment-grade restriction of 35% of assets at time of purchase. We remind investors that while Oppenheimer Rochester High Yield Municipal Fund (ORNAX) has no such restriction, the intention is to hold no more than 70% of assets in below-investment-grade securities.
- Its appeal may be new as well. As revamped, the fund may now be more attractive to investors who are seeking competitive levels of tax-free yield without the degree of share-price volatility that can occur when investing in longer-term high yield funds. (It is important to note that the fund does offer the Rochester portfolio managers broad investment discretion; the new investment strategy may lead OPITX to experience more volatility than in years past and investors are encouraged to consider whether the fund is well aligned with their individual tolerance for risk.)
OPITX, like its earlier incarnation, will seek to maintain an AEM (Average effective maturity) of 5 years or less. Because short-term bonds typically trade within a narrower price range than longer-term bonds, a fund that has a lower AEM will generally trade in a narrower price range. AEM limits also tend to lessen a fund’s sensitivity to interest rate changes. This sensitivity, known as duration, is measured in years, with higher numbers representing greater sensitivity to changes in interest rates. To our shareholders’ benefit, OPITX’s duration is significantly lower than the average in its Morningstar category (see infographic above).
What isn’t new, of course, is the tax treatment that can limit the tax bill for municipal bond fund investors. Net investment income generated by OPITX and our other 19 funds is exempt from personal federal income taxes, a distinction that historically has helped muni products deliver more income to their shareholders than taxable investments can. The fund continues to have a large and diverse portfolio with more than 660 holdings from more than 330 issuers. And, like the entire family of Rochester funds, OPITX will continue to employ the security-specific, value-oriented and research-intensive approach that we call the Rochester Way.
Follow @RochesterFunds for more news and commentary.
Fixed-income investing can entail credit and interest rate risks; as interest rates rise, bond prices generally fall and a fund’s share price can fall, too. A portion of a municipal bond fund’s distributions may be subject to tax and may increase taxes for investors subject to federal alternative minimum tax. Capital gains distributions are taxable as capital gains.
Below-investment grade (“high yield” or “junk”) bonds are more at risk of default and are subject to liquidity risk. Under certain market conditions, some unrated securities may trade less actively than rated securities. Our funds can have a relatively high portion of their portfolio holdings in particular segments of the municipal securities market, such as tobacco bonds or real-estate-related securities. They may also invest substantially in municipal securities within a single state or related to similar type projects, which can increase volatility and exposure to regional issues. Funds may also invest substantially in Puerto Rico and other U.S. territories, commonwealths and possessions, and could be exposed to their local political and economic conditions. Deterioration of the Puerto Rican economy could have an adverse impact on Puerto Rican bonds and the performance of the Rochester municipal funds that hold them. Diversification does not guarantee profit or protect against loss.