Ameriprise Financial Inc., one of the world’s biggest asset managers and financial planning firms, is advising clients to sell OppenheimerFunds municipal-bond funds that hold Puerto Rico debt in the aftermath of the island’s record default.

Oppenheimer holds the most Puerto Rico debt among municipal mutual funds, according to Morningstar Inc. As the commonwealth works to reduce its $70 billion debt load through bondholder losses, Oppenheimer funds that hold commonwealth bonds may need to cut dividends or see changes in the value of their portfolios,  Jeffrey Lindell, senior research analyst at Ameriprise, wrote in a Monday report.

“As Puerto Rico bond defaults accelerate, the mutual funds may have to cut dividend rates as bond interest payments are missed,” Lindell wrote. “The net asset value of the mutual funds could also be volatile as the price of Puerto Rico bonds reacts to speculation and news, or as potential principal haircuts occur.”

Oppenheimer held $3.5 billion of Puerto Rico securities across 19 funds, as of March 31, the most among municipal mutual funds, according to Morningstar Inc. Dan Loughran, who started the firm’s Rochester funds in 1994 and oversaw its $24 billion of muni-bond funds, transitioned into an advisory role on July 1 and will retire from the company at the end of September.

Fund Strategy

Loughran’s departure and the risk of losses on Puerto Rico debt led Ameriprise to advise clients to seek less risky options, Lindell wrote in the report.

Kimberly Weinrick, a New York-based spokeswoman for OppenheimerFunds, didn’t have an immediate comment.

OppenheimerFunds is known for its strategy of pouring money into the riskiest areas of the $3.7 trillion municipal market in pursuit of big returns. Over the years, its funds have purchased tobacco bonds, real-estate development deals roiled by the housing-market crash and debt issued by Puerto Rico. Its high-yield fund returned nearly 15 percent over the past year, beating 98 percent of its peers, according to data compiled by Bloomberg.

Debt Restructuring

Investors anticipate much of the commonwealth’s debt will be restructured. President Barack Obama on June 30 enacted a law that creates a federal control board to oversee any restructuring and monitor the commonwealth’s budgets. The next day, Puerto Rico defaulted on nearly $1 billion of principal and interest, the largest such payment failure ever in the municipal bond market.