Community Capital Management's flagship mutual fund, CRA Qualified Investment Fund (CRAIX), will dedicate $100 million of fund assets to invest in disaster recovery and redevelopment projects in New York, New Jersey and Connecticut in the wake of Hurricane Sandy.
"We have some existing shareholders in the mutual fund that want a portion of their investment targeted toward [Sandy], and other banks and entities are also looking at this," says Barbara Van Scoy, senior portfolio manager at the Weston, Fla.-based fund. Given that the fund's shareholders include 39 banks and nine other institutional shareholder and separate accounts in the area, she says that $100 million in Hurricane Sandy is "drop in the bucket" for the fund. "I would not be surprised if [we end up investing] $250 million.
"There is just so much to be done," she adds, noting that the fund has also had a $100 million Hurricane Katrina initiative and continues to invest in New Orleans. "This is not something where it only takes a few months or even a few years [to recover.] Unfortunately, they are still rebuilding, and we still support the Gulf Coast."
Community Capital Management, or CCM (formerly CRAFund Advisors) was founded in 1999 to help small banks comply with Community Reinvestment Act (CRA) tests for investments. The idea was that portfolios made up of government-related securities––those primarily excluded from the major bond indices––could produce competitive returns while serving low- and moderate-income families, low-income neighborhoods and communities targeted for redevelopment.
About 75% of the fund is invested in Fannie Mae, Freddie Mac and Ginnie Mae single-family and multi-family mortgage-backed securities. Nearly 18.5% of the fund is invested in taxable municipals and 2.2% in Small Business Administration loans and pools.
Fund research company Morningstar places the CRA Qualified Investment Fund in its intermediate-term bond category.
As pointed out in an article two years ago, the company’s labor-intensive due diligence prevented the fund from having any exposure to the toxic mortgages that caused the 2008 melt-down in mortgage-backed securities. Whereas many fixed-income investors bought blind pools of mortgages, CCM custom-created its single family mortgage pools by reviewing loan tapes, FICO scores and loan-to-value ratios.
Retail Shares
Although banks still account for roughly 84% of the $1.5 billion fund (HSBC is its largest shareholder), the strategy is also available in mutual fund form for other institutional investors (CRANX) and to retail investors (CRATX). CRAIX and CRANX both have $500,000 investment minimums, but investors need to pony up just $2,500 for the retail shares.
The retail fund has an expense ratio of 84 basis points and a yield of 2.52%. For 2012, the return for retail investors was 4.27%, or 3.9% including fees, compared to 4.21% for its benchmark (Barclay's U.S. Aggregate Bond Index.) Its five-year annualized return is 5.3%. About 95% of the fund's bonds are AAA-rated or government-guaranteed.
Community Capital Management also manages separate accounts for mission-related investors. For example, it recently bought bonds on behalf of the Kellogg Foundation to support buying, remodeling and equipping a facility in Kentucky for Truitt Brothers, a Salem, Ore.-based certified sustainable manufacturer of shelf-stable foods that range from Oregon fruits and vegetables to microwaveable meals.