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It’s “one of the last really exciting and last really cheap deals priced in the high yield area with size and liquidity in the last couple of months," said John Miller, Nuveen’s co-head of fixed income. Nuveen’s $15.6 billion high yield fund owned $370 million American Dream bonds as of August 31. The fund returned 9.3 percent through the third quarter. Miller invested about 7.5 percent of the fund’s assets in tobacco debt. Nuveen also reaped a windfall from its bet on its hometown school district. Chicago school bonds rallied after Illinois Governor Bruce Rauner signed a measure that boosts funding to the district by an additional $1.1 billion over the next five years. Chicago Board of Education bonds with a 7 percent coupon maturing in 2044 have returned 27 percent this year, Miller said. Nuveen owns $263 million of the securities. The performance of the American Dream bonds took Dreyfus, which doesn’t own any, by surprise. Not so, tobacco debt, whose cash flows can be modeled assuming varying degrees of cigarette consumption declines, Barton said. Under a 1998 national settlement, the major tobacco companies agreed to make annual payments to the states in perpetuity to resolve their liability for health-care costs attributed to smoking.

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To sustain profitability it’s working on “smart cost management, streamlining processes, identifying consumer segments and addressing their needs,” said Ridley. The company is also widening its portfolio. It started selling its popular Gold Leaf brand in a smaller packet of 12 sticks apart from the 20-stick packet, introduced a new product Gold Leaf Red and is unveiling John Player Navy Cut, which will be sold for 40 rupees a stick.  Still, those efforts may not completely offset the impact from the higher levies. Both revenue and net income will grow at a slower pace this year, according to Chayanika Ranasinghe, an analyst at CT CLSA Securities Ltd., in Colombo. The steep decline in sales volume seen after the November action is expected to “moderate, particularly if there are no further drastic tax increments or regulations,” she said. Ceylon Tobacco have climbed 24 percent this year, compared with the 4.3 percent gain in the nation’s benchmark Colombo All-Share Index. Measures being taken by Sri Lanka are in line with those by governments across the world to curb smoking. In 2015, the island nation ordered 60 percent of a cigarette packet’s surface be covered by pictorial health warnings and a few months later increased it to 80 percent . China, where 44 percent of all cigarettes are smoked, banned smoking in public places in 2015.

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