Mutual fund giant OppenheimerFunds Inc. -- among those firms displaced from their headquarters at the World Trade Center -- is experiencing flat to positive cash flow and few liquidations among its fixed-income and equity portfolios, and has actually been more of a buyer than a seller since the Sept. 11 terrorist attack, its chief executive officer said this week.
"Oppenheimer is not at a disadvantage to competitors," Leo Darling said during a special teleconference on Tuesday to update the market on how the fund company is faring following the national tragedy.
He characterized any changes in cash flow as "neutral, plus or minus $100 million," and said any early liquidations were "nothing significant" that the firm was not able to cover.
Over the last two weeks, cash flow is "flat to up" with respect to the fixed-income portfolios, including municipals, reported Jerry Webman, Oppenheimer's head of fixed income.
"If you add up all our muni funds, we are satisfyingly positive," he told The Bond Buyer after the conference call.
With little concern over cash flow or redemption issues -- or the economy showing any signs of inflation -- the firm is turning its attention to how investors view the overall market. It is recommending diversification to offset any market volatility and cautious risk-taking strategies to help shareholders recognize some added income during the current declining interest rate cycle.
"Investors are far more sensitive to risk, and that is in full force now," Darling said during the conference call.
But as Webman pointed out, "lower interest rates might lead people to take more risk" as a means of capturing some added yield in the backdrop of the Federal Reserve Board's continued easing cycle.
Webman recommended that risk-averse individuals can reasonably add income to their portfolios by taking on some duration risk and extending their maturities among high-quality bonds, now that spreads have widened significantly compared with Treasuries.
Meanwhile, Webman said he will approach accordingly the surge of new issues that will likely arise to finance the recovery efforts in New York and at the Pentagon.
"We'll look to see whether the market overestimates the impact and search for opportunities where the long-term fundamentals have justified" participation, he said.
The Limited Term New York municipal portfolio, for instance, has $1.3 billion in total assets as of Wednesday. The fund, which has a high-grade focus, lists New York City general obligation bonds, Port Authority of New York & New Jersey credits, and New York City Industrial Development Authority bonds among its top holdings, according to the oppenheimerfunds.com Web site.
The firm's largest municipal portfolio, the Rochester Municipal Fund, has $5.5 billion in assets, according to data from the Web site. It is an investment-grade fund that includes a small portion of unrated securities to provide high yield, according to the Web site.
Meanwhile, the Oppenheimer New York Fund, which totals $585 million, is an investment-grade fund incorporating securities that offer extra income.
As usual, Webman said he will proceed with caution when it comes to lower-rated industrial-type credits, like airline-backed bonds.
"We have tried to move toward those that look financially sound anyway in response to a slowing economy," and that should not change now, he said.
"We are trying to look inside the credits to see what claims on facilities these specific indentures might provide and try to make some astute choices" in the wake of the terrorist activity, he said. In the weeks following the attacks, several airline and airport credits have been negatively impacted via rating agency downgrades.
Within his municipal funds, Webman said he might consider selling credits that have underperformed, or add to positions that have underperformed "for no good reason."
But, overall, he said the current crisis should not impact any long-term strategies the firm already had in place.
"I don't see us making any major duration changes," Webman said, noting that with the long end of the market fairly stable, one of the goals will be to seek out the best relative value.
Logistically, Darling said, Oppenheimer is operating at full capacity, thanks in large part to having its data backed up at an alternate site in Denver.
Staff and personnel, on the other hand, were relocated to and remain at its contingency site in New Jersey. Oppenheimer occupied floors 31 to 34 and 37 at 2 World Trade Center, and all its employees escaped unharmed, according to Webman.
"The office is wherever the people may be hanging around," Darling said. The CEO called the traumatic 1993 bombing at the Twin Towers a "dress rehearsal" for the far more devastating attack of Sept. 11 -- both for the terrorists and their victims.
"We are up and running, and we feel we can operate in this environment," he added.
