BATON ROUGE - Louisiana investors who use mutual funds to save for college, retirement or a rainy day should be alerted to the fact that they could unknowingly be investing in high-risk Puerto Rico bonds, according to State Treasurer John Kennedy.
"Mutual funds and individual investors have been buying these bonds because they are listed as traditionally safe and exempt from federal and sometimes state and local taxes because Puerto Rico debt pays higher yields than other municipal bonds," Kennedy said. "But I worry about their safety."
The instability of Puerto Rico's economy, coupled with a credit rating one step above "junk," makes investing in the island a shaky proposition.
In addition to suffering from a stagnant economy, Puerto Rico has a history of enacting policies like issuing debt to pay off short-term deficits and maintaining high unfunded pension liabilities.
While the island struggles financially, Morningstar Inc. estimates that 77 percent of municipal-bond mutual funds contain Puerto Rico debt. Oppenheimer Funds manages most of the mutual funds with ties to Puerto Rico, followed by Wells Fargo and Nuveen.