UBS Puerto Rico Bond Funds Investor Update

Investors with holdings in UBS Puerto Rico Funds continue to sustain losses.  In just the last couple of months, UBS Puerto Rico Funds have lost over 50 percent of their value.  Within the previous quarter Puerto Rico Funds have lost $1.9 billion.

Investors in other municipal bond funds should also be concerned about the current state of Puerto Rican municipal debt.  Many mutual funds and institutional investors own debit issued by Puerto Rico.  About 75 percent of all muni-bond mutual funds include Puerto Rico municipal debt and each holds at least five percent of Puerto Rico debt in their portfolios, on average.  Investors in the United States hold about $3.7 trillion in the municipal bond market and about $70 billion of the municipal bond market’s total is held in Puerto Rico municipal debt.

Even if an investor does not directly own Puerto Rico Funds they could still have exposure to Puerto Rican municipal debt.  According to Morningstar:

  • At the end of August of 2013 Oppenheimer Rochester VA Municipal Fund held more than 33% of its portfolio in Puerto Rico bonds.  From the beginning of May to the beginning of October, 2013, the fund sustained a loss of about 14%.
  • Nuveen MD Municipal Bond Fund held about 14% of its portfolio in Puerto Rico bonds.   The fund lost about six percent from the beginning of May to the beginning of October of 2013.
  • Oppenheimer Rochester Limited Term Municipal Bond Fund held more than 12% of its portfolio in Puerto Rico bonds.  The fund loss about 3.3% from October of 2012 through October of 2013.

Credit ratings agencies Fitch, Moody’s, and Standard & Poor’s have each steadily downgraded the credit ratings on municipal bonds issued by Puerto Rico, calling into question the likelihood Puerto Rico can maintain its debt obligations.  Simply put, investments exposed to municipal bonds issued by Puerto Rico have become progressively higher risk and now border on speculative as the bonds sit just above junk status.  According to reports, one of the largest unfunded liabilities owed by Puerto Rico is approximately $37 billion owed for pension liabilities.  Puerto Rico’s debt load as increased substantially while its economy has been mired in a recession since 2006 with unemployment currently at 14%, almost double that of the U.S.

Bonds and bond funds are typically attractive to investors seeking income from their investments.  Rarely do retail investors seek to take speculative risk with fixed income investments like bond funds.  The triple-tax-exempt status of the UBS Puerto Rico Bond Funds made them especially attractive to investors seeking income while taking advantage of the tax exempt status of the funds.

To learn about suing to recover investment losses due to fraud and/or unsuitable investment recommendations involving UBS Puerto Rico Funds, please call us to learn about recovering your investment losses.

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