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Oppenheimer Rochester High Yld Muni C Message Board

  • taylorfife taylorfife Mar 3, 2008 10:29 PM Flag

    What is up with this poor performance

    the last 6 months? It seems to go down regardless of market activity.

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    • It boils down to politics in my mind: This fund owns a ton of Tobacco bonds. These are the bonds that the trial lawyers sold to the public to monetize their winnings against the Tobacco companies. Basically, with the help of a Congress, and teaming up with various State governments, the Trial Lawyers ripped off the shareholders of Phillip Morris et. al., disguised by the fiction of helping the poor smoker. (Of course, the smoker also got ripped off since he is paying the judgment with higher cigarette prices, but who is keeping track.)

      Anyway, the Lawyers and their partners in the State governments did not get all the money up front. Their winnings pay out over 30 years or so. Knowing the companies would be ripe to second generation, third generation, and fourth generation legalized rip-offs (maybe by themselves, heh heh), they knew they had to get their money out, some how. So they took a haircut and sold bonds to the public to cash in 30 years of payouts immediately. Now the buyers of those bonds, you and I, are the "financiers" of the tobacco companies--since you and I own their bonds. So....we are the "new" purveyors of tobacco, the reasoning goes. So the next round of rip-offs will be against us, and of course hapless remaining shareholders of the tobacco company stocks and bonds.

      Now those are the main negatives. On the positive side, people tend to quit smoking slowly. And there is a lot of overseas demand for Marlboro, Winston, etc. So there is a ton of cash flow behind the bonds. I am not sure where these bonds stack up in seniority against the company's bonds, but they are ahead of preferred stock (if any) and are definitely ahead of common. So if you have even considered buying Altria or Phillip Morris common, you might want to buy this fund instead, since the payout is senior to the common. It might even be senior to the GO bonds of the companies themselves, though probably not any secured bonds.

      Unfortunately, with a Dem. president, 59 Dem senators and a Dem House, there is no telling what may happen to the financiers of the tobacco companies nowadays. Property rights of the owners of financial assets are now a bit squishy (especially for tobacco), so another round of confiscation is always possible.

      So this is a high risk fund. But hell, it is mostly muni tax free (I think), and yields 10% so maybe it pays off. I bought 8% ago so I am already under water. But I will hang on and watch the politics--if it starts to look ugly, sell. Good luck.

    • lost big and out...

    • Can someone explain this Muni - what is driving it down so much?

      • 1 Reply to nuhusky82
      • Look at its chart- it is more volatile than its cohorts historically during bad muni years- like '99- but has a higher upside. It should not be categorized with other munis that do not take near the risk on with their portfolios. My opinion is that we will look back and think that this was a good time to get into this type of fund- like we do now getting in post the '99 drop. The underlying holdings are not defaulting, the demand for them has dropped significantly. Once the supply and demand get more in-line with historic trends, this account will have share appreciation. In the meantime, you receive a very good tax-free income.

 
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