Investors would be wise to keep an eye on funds that have the most exposure to Puerto Rico debt as the island faces unprecedented devastation from Hurricane Maria.
Puerto Rico had already racked up more than $70 billion in debt before the storm. And with a new request for $1.4 billion in federal aid from Gov. Ricardo Rossello, the island's shortfall doesn't look like it will end any time soon.
The situation led one Columbia Threadneedle Investments executive to declare that the possibility that Puerto Rico bondholders will recover all their money has "dwindled" in a blog post Monday.
"Long before Hurricane Maria, we believed that Puerto Rico bondholders should expect significant losses," wrote Chad Farrington, head of municipal bond credit research and senior portfolio manager at Columbia Threadneedle. "Now, the economic outlook is further weakened by the effects of the hurricane."
Firms with the most PR debt exposure
Firm | Total Puerto Rico debt |
OppenheimerFunds | $2,955,781,628.00 |
Franklin Templeton Investments | $1,142,020,099.00 |
MFS | $676,144,062.00 |
MainStay | $554,738,801.00 |
Goldman Sachs | $511,618,471.00 |
American Funds | $212,453,233.00 |
Eaton Vance | $191,457,544.00 |
Lord Abbett | $149,579,023.00 |
Vanguard | $123,634,227.00 |
BlackRock | $110,219,411.00 |
Source: Source: Morningstar Direct
That prediction comes as the island's revenues that are diverted to help with rebuilding efforts could reduce the likelihood bondholders will recover their funds, according to Farrington. In addition, the island's population could shrink if a trend toward migration elsewhere accelerates due to slow recovery efforts, he said.
Puerto Rico's debt made headlines last week, as President Donald Trump called for the island's debt to be "wiped out." The president's comments prompted Puerto Rico's general obligation bonds to drop to 37 cents on the dollar.
The majority of those bonds are held by individual investors, Cate Long, founder of research organization Puerto Rico Clearinghouse, said in an interview. Investors piled into the debt amid a hunt for bigger returns and the prospect of reduced taxes on their gains; the interest on Puerto Rico's debt generally does not require investors to pay local, state or federal taxes.
As a result, experts point out that investors should be vigilant about investigating whether they own Puerto Rico debt and, if they do, how much they own.
Funds with the most Puerto Rico debt exposure
FundName | Fund Weighting in Puerto Rico debt | Market Value of Puerto Rico Debt | Fund |
Oppenheimer Rochester MD Municipal Fund | 22.40% | $6,946,788.00 | $30,947,106.00 |
Oppenheimer Rochester VA Municipal Fund | 20.20% | $15,032,633.00 | $74,412,635.00 |
Oppenheimer Rochester ShrtDur HY Muni Fd | 18.20% | $273,351,491.00 | $1,497,842,170.00 |
Oppenheimer Rochester Fund Munis Fd | 17.70% | $1,020,903,948.00 | $5,776,883,928.00 |
Oppenheimer Rochester AZ Municipal Fund | 17.30% | $5,345,365.00 | $30,824,918.00 |
Oppenheimer Rochester NJ Municipal Fund | 17.20% | $58,499,903.00 | $340,386,019.00 |
Oppenheimer Rochester AMT-Free NYMuniFd | 14.80% | $160,136,611.00 | $1,084,433,216.00 |
Oppenheimer Rochester Ltd TermNYMunisFd | 14.30% | $321,597,151.00 | $2,241,408,809.00 |
Oppenheimer Rochester NC Municipal Fund | 13.10% | $7,473,483.00 | $57,137,280.00 |
Oppenheimer Rochester PA Municipal Fund | 12.40% | $94,154,901.00 | $760,119,144.00 |
Oppenheimer Rochester MA Municipal Fund | 12.00% | $5,118,685.00 | $42,749,944.00 |
Oppenheimer Rochester Ohio Muni Fund | 11.30% | $6,930,380.00 | $61,535,903.00 |
Transamerica High Yield Muni | 10.20% | $10,581,341.00 | $103,589,832.00 |
Oppenheimer Rochester High Yld Muni Fd | 9.90% | $580,030,141.00 | $5,843,386,533.00 |
MainStay High Yield Municipal Bond Fund | 9.10% | $299,523,091.00 | $3,278,567,545.00 |
Eaton Vance OR Municipal Income Fund | 9.10% | $10,679,066.00 | $117,716,211.00 |
Oppenheimer Rochester AMT-Free Munis Fd | 8.80% | $182,229,147.00 | $2,080,442,951.00 |
Oppenheimer Rochester Michigan Muni Fd | 8.40% | $2,972,680.00 | $35,264,327.00 |
Oppenheimer Rochester CA Municipal Fund | 8.10% | $112,442,550.00 | $1,381,435,859.00 |
Eaton Vance MO Municipal Income Fund | 8.10% | $5,182,465.00 | $64,130,464.00 |
Oppenheimer Rochester Ltd Term CAMuniFd | 8.00% | $44,635,841.00 | $559,078,436.00 |
SPDR Nuveen S&P High Yield Muni Bd ETF | 7.80% | $48,270,524.00 | $622,403,153.00 |
MainStay Tax Free Bond Fund | 7.70% | $207,929,662.00 | $2,688,113,343.00 |
MFS Municipal High Income Fund | 7.00% | $276,838,252.00 | $3,978,791,666.00 |
MFS Maryland Municipal Bond Fund | 6.70% | $6,051,438.00 | $89,866,556.00 |
Source: Source: Morningstar Direct