BOSTON — Municipal bonds — which finance projects such as roads and sewers — may not be the sexiest investments, but if investor inflows count for anything, OppenheimerFunds Inc.’s Rochester unit looks like Sophia Loren.
Two funds managed by the muni bond fund unit, born from OppenheimerFunds’ 1996 acquisition of The Rochester Funds, ranked as New York-based OppenheimerFunds’ two best-selling funds last year, according to data from Financial Research Corp.
In fact, the No. 1 seller, Oppenheimer Rochester National Municipals Fund, also ranked as last year’s best-selling muni fund overall, netting $2.43 billion in fresh investor cash, according to FRC, a Boston-based financial services consulting firm.
Flows from that fund, as well as those from the firm’s No. 2 seller, Rochester Fund Municipals Fund, helped make OppenheimerFunds last year’s top-selling muni bond fund group, with $7.2 billion of net inflows. Muni funds at
The Vanguard Group Inc. of Malvern, Pa., the nearest competitor, netted just $2.9 billion last year, according to FRC.
“When you think of Oppenheimer, it’s not necessarily immediately associated with municipal bond funds, but the Rochester brand is,” said FRC analyst Shauna Ginsberg. “The Rochester brand is looked at as a leader in municipal bonds.”
Ronald Fielding, 58, who founded The Rochester Funds in 1980, together with a partner sold what then was a three-fund group to OppenheimerFunds in January 1996 for more than $70 million. He manages both the $7.2 billion Oppenheimer Rochester National Municipals Fund (ORNAX) and the $10.3 billion Rochester Fund Municipals Fund (RMUNX).
Hitting a milestone
Flows into Rochester’s muni funds helped OppenheimerFunds, a majority-owned unit of Massachusetts Mutual Life Insurance Co. in Springfield, last month cross the threshold of $250 billion in assets for the first time ever, according to OppenheimerFunds spokeswoman Jessica Greaney.
Tobacco and airline bonds rank among the top 10 holdings in both portfolios. One of the funds’ “selling points” with brokers is their willingness to look for opportunities in riskier areas such as those, as opposed to safer, triple-A-rated general-obligation bonds backed by tax revenue, Mr. Fielding said.
“If the client wants triple-A bonds or general-obligation bonds backed by taxes and stuff, they can go buy those individually,” he said. “Tobacco bonds and airline bonds and other credit-sensitive bonds have all kinds of potential issues with liquidity and risk, and they need professional management and big-time diversification.”
Both Oppenheimer Rochester National and Rochester Fund Municipals hold more than 1,000 issues, Mr. Fielding said.
For the five-year period ended March 1, Oppenheimer Rochester National averaged nearly a 10% annual return to beat the average annual return of its high-yield muni fund peers by 3.5 percentage points, according to Chicago-based Morningstar Inc. Rochester Fund Municipals returned an average 7.4% annually over that five-year period, beating its Muni New York Long peers by 2.6 percentage points.
More buyers are likely to flock to municipal bonds in the years ahead, Mr. Fielding said.
“We’re about to have a huge surge in people reaching retirement, and of course, that is historically the market for muni buyers,” he said.
The older people get, the less need they have for the inflation protection of equities, Mr. Fielding said.
Although some may argue that buying equity mutual funds with a systematic withdrawal plan has provided a better total return over the past 80 years or so than have bond funds, that doesn’t take into account the psychological aspect of retirement investing, he said.
For retired people with much of their nest eggs in stocks, market sell-offs are traumatic events, Mr. Fielding said. For every day like Feb. 27 investors get, “they’re going to have a heart attack,” he said.
Aversion to taxes
The increasing aversion to taxes that comes with age also bodes well for muni bond fund flows, Mr. Fielding said.
“You gradually learn how much the government wastes your money, whereas you’re optimistic when you’re in your 20s that the government is going to do something good with it,” he said.
