Ameriprise tells clients to sell OppenheimerFunds municipal-bond funds holding Puerto Rico debt
Oppenheimer has about $3.5 billion in Puerto Rican debt spread across 19 funds, according to Morningstar.
Ameriprise Financial is telling clients to sell OppenheimerFunds municipal bond funds with big holdings of Puerto Rican debt, adding to the chorus of critics of the funds’ holdings.
Five of the Oppenheimer Rochester single-state muni funds have more than 30% of their portfolios invested in Puerto Rican debt. The commonwealth has more than $70 billion in muni debt, and defaulted on nearly half of $2 billion due July 1. Oppenheimer has about $3.5 billion in Puerto Rican debt spread across 19 funds, according to Morningstar.
The big stake in Puerto Rico debt prompted Ameriprise senior analyst Jeffrey Lindell to warn clients about the funds, according to Bloomberg. “As Puerto Rico bond defaults accelerate, the mutual funds may have to cut dividend rates as bond interest payments are missed,” Mr. Lindell wrote. “The net asset value of the mutual funds could also be volatile as the price of Puerto Rico bonds reacts to speculation and news, or as potential principal haircuts occur.”
Interest from Puerto Rico’s obligations is free from state and federal taxes in all states, which explains their presence in many state-specific muni funds. But OppenheimerFunds’ outsized stake in Puerto Rico has been getting raspberries from other analysts as well. Oppenheimer Rochester Virginia Municipal (ORVAX), Oppenheimer Rochester Pennsylvania Municipal (OVPAX) and Oppenheimer Rochester Maryland Municipal (ORMDX) all get two stars from Standard and Poor’s, a negative rating. All have more than 35% of their portfolios in Puerto Rico, according to Morningstar; Oppenheimer Rochester Maryland Municipal has 45% of its assets in the commonwealth.
Two other funds laden with Puerto Rico’s paper, Oppenheimer Rochester North Carolina Municipal (OPNCX) and Oppenheimer Rochester Arizona Municipal (ORAZX) get a neutral rating of three stars from S&P.
Morningstar gives Oppenheimer’s Maryland fund one star out of five for its three-year record, a negative rating. It awards three stars, however, to Oppenheimer’s Virginia offering and four stars to Oppenheimer’s Pennsylvania fund. The Maryland offering ranks in the 93rd percentile in its category, the Virginia fund ranks in the 68th percentile, and the Pennsylvania fund ranks in the 25th percentile.
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