Puerto Rican bond market is struggling. In a recent article in Morningstar, Eric Jacobson writes that things began to deteriorate before the 2008 financial crisis, due to a 2006 tax-benefit expiration which resulted in manufacturers leaving the island. The difficulties have only worsened since then.
Many U.S. investors assume they're immune to the troubles because they live on the U.S. mainland. Investors holding their own state's funds might also think they're even more insulated than investors with national fund exposure. Unfortunately, none of this is true.
There are approximately 180 funds in Morningstar's database--with more than $100 billion in net assets--that have weightings of 5% or more in Puerto Rico bonds. Not every fund has suffered the same, but funds with heavy Puerto Rico weightings have suffered heavily.
The largest funds with at least 5% in Puerto Rico, show some trends. Of the 10 Franklin funds on the list, all but one are single-state-focused portfolios. Morningstar counted 20 municipal funds managed by Oppenheimer, with an average loss of roughly 8.9% over the May 1 through Oct. 1 period. Oppenheimer has run its municipal funds with a strong focus on income production for many years, and while it may have resulted in some generous yields, it also has provided volatility. For example, according to Morningstar, they all bounced back strongly in 2009, but the average return among the firm's 18 funds in 2008 was a negative 32.2%.
Funds Heavily Weighted in Puerto Rico Bonds:
Oppenheimer Rochester Ohio Muni Fund: OROHX
Rochester Fund Municipals Fund: RMUNX
Oppenheimer Rochester National Munis: ORNAX
Oppenheimer ROchester AMT-Free NY Muni: OPNYX
Franklin Double Tax Free Income Fund: FPRTX
Oppenheimer Rochester VA Municipal Fund: ORVAX
Oppenheimer Rochester NC Municipal Fund: OPNCX
Oppenheimer Rochester MD Municipal Fund: ORMDX
Oppenheimer Rochester AZ Municipal Fund: ORVAX
Oppenheimer Rochester MA Municipal Fund: ORMAX
Oppenheimer Pennsylvania Municipal Fund: OPATX
Oppenheimer Rochester Michigan Muni Fund: ORMIX
Forward Credit Analysis Long/Short Fd: FLSIX
Nuveen VA Premium Inc Muni: NPV
If you or a loved one purchased funds heavily weighted in Puerto Rico bonds please call Soreide Law Group at (888) 760-6552 for a free consultation.
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