Do the markets feel especially unpredictable? Do you like the idea of having a variety of funds with similar strategies but different time horizons? Do you still appreciate the power of yield-driven total returns, despite the current low-interest-rate environment?
If you find yourself nodding your head, our national funds—which are tax-free municipal bond funds with a high concentration of investment-grade holdings—can help give you greater flexibility in meeting your specific investment needs.1
Like the entire suite of Oppenheimer Rochester muni bond funds, the national funds strive to generate total returns that are derived primarily from tax-free income:
- Oppenheimer Rochester Short Term Municipal Fund
- Oppenheimer Rochester Intermediate Term Municipal Fund
- Oppenheimer Rochester AMT-Free Municipal Fund
These three national funds were created for investors throughout the United States. All three generate income exempt from federal personal income taxes. The AMT-free fund is also managed to produce income that does not increase an investor’s exposure to the federal alternative minimum tax.
The short and intermediate term funds each maintain an average effective maturity (AEM) closer to the short end of the yield curve, and they are designed for investors who would rather not worry about share-price volatility. (Because short-term bonds typically trade within a narrower price range than longer-term bonds, a fund that seeks to maintain a shorter dollar-weighted AEM will generally trade in a narrower price range too. AEM limits also tend to lessen a fund’s sensitivity to interest rate changes.)
The AEM targets for our national funds are as follows:
- Short term fund—2 years or less
- Intermediate term fund—3 to 7 years
- AMT-free fund—No AEM limit
All three national funds primarily hold investment-grade securities. The purchase of below-investment-grade issues, which is restricted to a specific percentage of fund assets at the time of purchase, is 5% for the short term fund, 10% for the intermediate term fund and 25% for the AMT-free fund.
Our seasoned portfolio management and credit research teams are known for their yield-driven approach to creating shareholder value. While each of our municipal bond funds seeks to provide a meaningful level of tax-free income, our investing practices differ:
- In our longer term funds, including Oppenheimer Rochester AMT-Free Municipal Fund, our portfolios include inverse floating-rate securities, which are also known as “inverse floaters” are structured to produce highly favorable yields under certain market conditions.
- Our short and intermediate term funds have never included inverse floaters, as they can also exhibit higher levels of price volatility. Our intent is to maintain this practice.
All of our funds employ a security-specific, value-oriented and research-intensive approach that helps us identify many attractive but overlooked bonds. We call this investment approach the Rochester Way.
Our portfolios often include a diverse mix of bonds:
- High-quality small issues typically reward bondholders with attractive yields and payment schedules. While these bonds may trade less frequently than larger issues, a diverse set of holdings generally offers a fund sufficient liquidity to help achieve its objectives.
- Premium-coupon, callable bonds generally provide favorable yields. As these bonds approach their call dates, they tend to have less exposure to interest rate moves and less price volatility than other tax-free investments. Because issuers can be highly inefficient about exercising their call options, we have often collected above-market yields long beyond a bond’s call date. In these instances, the market’s inefficiencies can reduce call risk (when an investor receives less income than had been expected) as well as reinvestment risk (when the market fails to offer equally attractive investment opportunities). Historically, premium-coupon, callable bonds have been a positive for fund shareholders.
- Non-rated issues with solid credit qualities also figure into the investment mix of our maturity managed funds. While most of our holdings have been evaluated by a Nationally Recognized Statistical Rating Organization (an “NRSRO”) such as S&P Global Ratings (S&P), Moody’s Investors Service, or Fitch Ratings, our portfolio managers have enhanced yield over the years by investing with unrated but creditworthy issuers, many of whom intentionally forgo the time and expense of obtaining a published rating.
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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. Diversification does not guarantee profit or protect against loss.