Credit Team Finds Yield-Rich Bonds
A diverse set of yield-rich municipal sectors continued to help our funds deliver tax-free income to the shareholders of our 20 funds in 2016 and, as usual, our inhouse credit research team was central to the investing decisions that enabled our funds to produce yield-driven total returns.
The team’s expertise in analyzing offering statements and evaluating a security’s likely risk/reward trade-offs allows Oppenheimer Rochester to maintain a bond-centric approach: Unlike some competitors’ investment teams, who make sector calls first and then look for suitable bonds within those sectors, our 11-person credit team first considers what is available in the primary and secondary market and then evaluates each security’s potential to drive performance.
Oftentimes, the team identifies high-yielding bonds offered by non-rated but creditworthy issuers that have chosen not to obtain a published rating from S&P Global Ratings (S&P), Moody’s Investors Service or Fitch Ratings. Each Oppenheimer Rochester credit analyst has significant experience within at least one sector, and the team’s focused work leads to confident decisions about investing across the full credit spectrum.
Several high-yield sectors that our investment team favored were solid performers in 2016, including the Special Tax sector, which finances infrastructure development, and sectors consisting of electric, water and sewer utility bonds.
Shareholders also benefited from our funds’ holdings of “tobacco bonds,” which are securities backed by the proceeds of the 1998 tobacco Master Settlement Agreement. The sector rallied in 2016, and the Rochester complex sold hundreds of millions of dollars of these high-yielding bonds. Market conditions led us to take advantage of price appreciation while lowering the funds’ exposure to below-investment-grade credits. Despite our status as a net seller of “tobacco bonds” in 2016, the funds continued to be overweight relative to our competitors’ muni bond funds, and our long-term view of the sector remains bullish, given the attractive valuations.
Additionally, because many municipal issuers were eager to lower their debt-service obligations in 2016, the multiyear pre-refunding trend persisted.1 A number of securities held by Rochester funds were pre-refunded during the year, thus becoming as safe as AAA-rated U.S. Treasuries while providing the high levels of income typically associated with securities having much lower credit ratings and higher degrees of risk.
Learn about our current fund lineup, which now includes 3 national funds, 2 national high yield funds and 15 single-state funds. All 20 Oppenheimer Rochester funds have been designed to help investors reach their goals for tax-free income. For more information on the news, market trends and investing strategies that made a difference in 2016, read our full Annual Overview.
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1Proceeds from a refunding or pre-refunding are escrowed in U.S. Treasury bonds, which are backed by the full faith and credit of the U.S. government, and earmarked to pay off the previously issued bond—at the original coupon.