Do the markets feel especially unpredictable? Does the idea of navigating to shorter-term investments seem appealing? 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 “maturity managed” funds—which are tax-free municipal bond funds with shorter timeframes and a high concentration of investment-grade holdings—can help give you greater flexibility in meeting your specific investment needs.
Like the entire suite of Oppenheimer Rochester muni bond funds, these five strive to generate total returns that are derived primarily from tax-free income:
- Oppenheimer Rochester Short Term Municipal Fund
- Oppenheimer Rochester Limited Term Municipal Fund
- Oppenheimer Rochester Limited Term California Municipal Fund
- Oppenheimer Rochester Limited Term New York Municipal Fund
- Oppenheimer Rochester Intermediate Term Municipal Fund
What distinguishes these tax-free muni funds from longer-term alternatives is their focus on maintaining net asset values (NAVs) that are less volatile while minimizing investors’ concerns about uncertain markets.
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 average effective maturity (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 five maturity managed funds are as follows:
- Short term fund—2 years or less
- Limited term funds—5 years or less
- Intermediate term fund—3 to 7 years
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 limited term and longer term funds, our portfolios include inverse floating-rate securities, also known as “inverse floaters,” which 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.
Like all of our funds, our maturity managed 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 maturity managed 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 Standard & Poor’s, 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.
Fixed-income investing entails credit and interest rate risks (when interest rates rise, bond/fund prices generally fall). 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. Diversification does not guarantee profit or protect against loss.