Category: Municipal Bonds / Long Duration Funds
LB Rating: * 1 Star
Last Updated: 9/18/2012
Summary: The Rochester National Municipal Bond Fund (ORNYX) is a fund for tax-free yield hunters. Even in this super-low interest rate environment, the fund is providing a tax-equivalent yield of over 8%. But buyer beware, this fund takes lots of both interest rate risk and credit risk.
Commentary: This fund is part of Rochester’s Oppenheimer fund family that specializes in municipal bonds. Rochester Funds has a unique attitude about trying to predict interest rates. They don’t try to make future predictions. Effectively, this means that they buy maturities which are paying the highest interest rates. When the yield curve is steep this means the fund has a really long duration. Currently, the duration of the fund is around 9 years. That’s almost 50% longer than the popular bond index funds. If interest rates rise, this fund will dive in value.
In the Learn Bonds article about “How To Choose A Municipal Bond For Income”, we suggest that you avoid tobacco settlement bonds (those funded by tobacco sales) and Puerto Rico’s municipal bonds. This fund’s first, second and fifth largest holdings are tobacco bonds. Puerto Rico Bonds make up over 5% of its portfolio.
If you are tempted by the more risky bonds, you should do it through a fund that is expert in monitoring and evaluating the specific risks of these bonds. However, the fund is playing with fire. Over the last three years, they haven’t been burned.
Short-Term Performance: Excellent The Rochester National Municipal Bond Fund has outperformed its benchmark over the last 12 months and 3 years. Performance is particularly strong over the 3 year periods, with an annualized return of 11.74%.
Long-Term Performance: Poor The fund is down over 1.06% on average per year over the last five years during a period when the average high yield municipal fund turned in a positive performance of 3.69% on average per year. Over 10 years, the the fund has positive performance but still trails its peers.
Returns Relative to Risk: Bad Too much interest rate risk, too much credit risk, too little long-term returns.
Fees: Good No front end sales load and a very low annual expense for an actively managed fund. You can learn more about mutual fund expenses here.
Manager Tenure: Excellent Core team lead by portfolio manager Daniel Loughran has been in place for almost a decade.