For example, he notes that one of SNW’s HIP-rated bond accounts is a national intermediate tax-free bond account with a yield of 1.80 percent while SNW’s non-HIP national intermediate tax-free bond composite has a yield of 1.75 percent.
The HIP scorecard can also serve as an early warning system for performance. Using historical data, he and Bernhardt have found that defaulting and at-risk issuers (such as the City of Detroit and the City of Philadelphia, respectively) would have commanded much lower impact scores than other municipal bond issuers even well before their credit troubles surfaced.
HIP also covers all or nearly all of SNW-managed corporate bonds, plus sovereigns (including U.S. Treasuries), agencies (such as Freddie Mac and Fannie Mae) and munis issued by non-profits (including universities and health care systems).
Good Source Of Liquidity
The Caprock Group—a multi-family office located in four western states—has used SNW Asset Management as its core fixed income manager for years and provided a couple of client portfolios for beta testing of SNW’s impact-rated bond portfolios. While only about 15% of the 75 families Caprock works with are impact-oriented, these clients seek impact across their portfolios, says Matthew Weatherley-White, a managing director with Caprock. Impact-related investments account for about $1 billion of Caprock’s $2.2 billion of assets under advisement, he says.
The SNW impact-rated portfolios work well with Caprock’s overall outlook on fixed income. “We don’t see it [fixed income] as a volatility dampener,” Weatherley-White says. “We see it as a source of liquidity that clients may need during periods of adverse market behavior.”
He likes that the impact-rated bond portfolios don’t require clients to take any additional credit, duration or interest rate risk versus conventional fixed-income portfolios, and there is no need to sacrifice yield for impact. Currently, yields for Caprock’s impact and conventional clients range from 1.75 percent to 2.25 percent depending on when their portfolios were built, he says.
Caprock clients have invested in munis issued by the Port of Seattle, which has a HIP score of 70. The port offers the lowest carbon footprint for cargo sent from Asia to Midwest cities, is increasing power efficiency by ships in port, and is reducing emissions at the Seattle-Tacoma International Airport, Herman says.
Weatherley-White notes that some of his firm’s clients are interested in investing in education issues.
Seattle-based wealth manager Brighton Jones LLC, which has more than $2 billion under management, saw the impact-rated bond product as the perfect solution for a client who came in about a year ago with a particularly strong desire for impact investing, says Matthew Camrud, a lead advisor with the firm.