Archive for the ‘Uncategorized’ Category

Economic Perspective Q4 2017

February 5th, 2018

by Jane Swan, CFA, Senior Wealth Manager

Market Strength through Uncertainty

Hurricanes, fires, earthquakes, marches, market growth, a new tax plan and some unbelievable tweets – 2017 was an unforgettable year. Markets typically do not like uncertainty, but were strong through a year of swirling unpredictability. What happened and what comes next?

The S&P 500 (U.S. large cap) was up 6.6 percent in the quarter, bringing performance for the year to 21.8 percent. The Russell 2000 (small cap) was up 3.3 percent in the quarter, up 14.65 percent for the year. International stocks were up even more than domestic equities. The MSCI EAFE (developed international equities) were up 4.3 percent in the quarter, 25.6 percent for the year. Strongest of the major equity benchmarks was the MSCI Emerging Markets index, up 7.5 percent in the quarter and 37.8 percent for the year.

2017 Q4 Asset Class Returns

Within U.S. equity markets, the strongest performance came from the consumer discretionary sector, up almost 10 percent in the quarter, and 38.8 percent for the year. All sectors were positive in the quarter, led by technology, financials, materials, consumer staples, industrials, and energy stocks.  However, even with strength in the last two quarters, energy and telecom remained negative for the year.

2017 Q4 Sector Returns

Investment-grade fixed income returns were challenged in the quarter by the second Fed Funds rate hike of the year in December. This was the first year since 2005 that the Fed raised interest rates twice. Intermediate corporate bonds were down 0.2 percent for the quarter but up 2.14 percent for the year. Municipal bonds ended the quarter down 0.7%, but were up 3% for the year. Treasuries were up 0.1% for the quarter, 2% for the year.

A tempered bond market is not a surprise with the rate hikes. And the rate hikes are not a surprise given the prolonged period of very low rates, near record expansion in the stock market, very low unemployment rates, and stable, sustained recovery in the economy. Less predictable is the impact significant corporate tax cuts will have on an already energized stock market and an economy that is eight years into expansion. Cuts to income taxes are likely to have a positive impact on both consumer spending and investments. Tabling for this discussion the potential positive economic impact of personal tax cuts and the regressive nature of the new tax plan, what impact might the corporate tax cuts have on the market and the economy? To understand this, we look at the stated intent of the corporate tax cuts, and how this may alter the current course of the economy.

New Tax Bill Passed

The underlying premise of cuts to corporate tax rates has largely been the notion that reducing corporate tax rates will lead to greater investments by corporations. These investments will lead to job creation and wage growth. Perhaps corporations have been paying so much in taxes that they haven’t had enough money to invest in business expansions and wage increases. Business expansions stimulate the economy and can increase the number of jobs both in the short run (construction) and in the long run through new permanent jobs. In other words, more business spending could create more jobs, leading in turn to greater consumer spending and a robustly growing economy.

Contrasting the stock market’s growth since 2008 with that of the economy, we see two different declines, and two very different recoveries. While our GDP is up 15 percent and wages are up 24 percent from levels prior to the great recession, the S&P 500 is now 78 percent higher than it was before the market decline.  In other words, this most recent expansion has favored shareholders over wage earners by a multiple of three.

The Decline and the Recovery

Impact on Gross Domestic Product

Growth of our economy is measured by the Gross Domestic Product (GDP), which breaks contributors into four broad categories: consumer spending, government spending, investment, and net exports which have been negative as we have imported more than we have exported for several decades. For as long as it has been measured, consumer spending has been the largest contributor to GDP, averaging about 67 percent and growing about 2.7 percent per year over the last twenty years. The next largest portion of GDP comes from government spending, which makes up about 19 percent of the GDP and has been growing at a rate of about 1.2 percent over the same time period. The smallest contributor to GDP over the last twenty years has been investment. Investment refers to business spending, primarily on equipment, buildings and land, and increases to inventories. In the last twenty years, this has averaged about 17 percent of the total GDP and has been growing at a rate of 2.8 percent. Finally, net imports detract an average of 3 percent from GDP and have been growing at about 4.5 percent per year.

Contributors to GDP

Looking at the current economic recovery, the time since the recession ended in 2009 to now, something stands out. At 2.2 percent, growth in consumer spending has tracked below its longer-term average of 2.7 percent. Government spending has decreased by an average of 0.6 percent per year rather than its typical growth rate of 1.2 percent. The detraction of net exports on GDP is in line with its long-term average. While the U.S.’s negative net exports, which detract from GDP, are increasing, it makes up such a small portion of the total GDP that this higher growth rate has a low impact on total growth. Investment has been the outlier, growing 5.3 percent per year, almost double the long-term average of 2.8 percent. If growth in investments has already been much greater than the average rate and this hasn’t led to robust enough economic growth, why not?

The answer is that the high rate of investment spending has not yet led to growth in consumer spending. Despite adding 17.6 million jobs and taking unemployment from the peak in 2009 of 10 percent to the current low of 4.1 percent, consumers have been spending at a slower than normal rate. Because consumers buy the products made by corporate investments, corporations should only invest in increased lines of productions if they believe consumers want more of what they currently sell than they can currently produce. Trends since our last recession suggest that while corporate investment has more than recovered, the consumer has not. Without growing demand from strong consumers, corporations may continue to spend tax savings on higher dividends for shareholders or through share buybacks. Both will benefit shareholders more than consumers, or the broader economy.

Inorganic Source of Growth

The cut to corporate tax rates will most likely provide a nice boost to corporate earnings by inflating the year over year earnings growth rate, which may extend the bull market’s run. While the boost to earnings will continue for as long as the corporate tax cuts remain, the earnings growth rate will only be impacted for the first year. After that point, the stock market would need to find a new source for earnings expansion. There is little room for further reductions in unemployment, so growth in consumer spending would be easier to achieve from better paid workers rather than through increasing the number of workers. Higher wages could break the stagnation in consumer spending growth, and lend support to continuation of a strong stock market and strengthening economy.

Perhaps this is why Larry Fink, CEO of BlackRock, penned an impassioned letter to the CEOs of publicly traded companies. In his letter, Fink highlighted that in addition to financial analysis, a corporation’s strategic plans “must also understand the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation to climate change – affect your potential for growth.” He critiques CEO pressure to serve shareholders by distributing a higher portion of earnings at the expense of investments in future capabilities, such as employee development, fair wages, and innovation. “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”

There is hope. In addition to thousands of bonuses announced after the tax plan passed, many of the largest employers, including Walmart and Starbucks, have announced increases to wages for their lowest paid workers. If we see a continuation of these types of increases, and additional increases bringing the lowest paid workers closer to a living wage, we could finally see a growth in consumer well-being and spending. Additionally, several companies have announced plans to add jobs in the US which could help the average annual jobs added number maintain or even exceed the annual rate of 2.2 million new jobs from the last eight years. Continuing job growth and increasing wages could provide a more stable base to our growing economy.

Key in the Veris investment philosophy is our belief that companies integrating environmental, social, and governance factors into their business practices are better positioned competitively and that the attention paid to these criteria can help mitigate risk. Reductions to government regulation of worker safety and environmental quality, along with wage stagnation that has coincided with a decline in union membership and clout, leaves both the environment and the economy in a precarious position. Both may be sustained by business practices that take a mindful approach, incorporating the societal impact of business into the business strategy, considering the long term rather than narrowly focusing just on the next quarter’s earnings.

While we grow investment strategies that meet our financial and impact criteria, we also are considering the ways in which changes to personal taxes impact both our clients and the investment strategies we deploy in your portfolio. With the magnitude of changes, many of our clients will benefit from a coordinated meeting between your wealth manager, tax planner, and estate planning attorney. If you have questions about how recent tax changes will affect you or your investments, we are here to start the discussion with you.

Economic Perspective Q3 2017

October 27th, 2017

by Jane Swan, CFA, Senior Wealth Manager

Despite hurricanes, earthquakes, wildfires, and ongoing political chaos, markets climbed higher in the third quarter. The S&P 500 (U.S. large cap) was up 4.5 percent in the quarter, bringing year to date (YTD) growth to 14.2 percent. The Russell 2000 (small cap) was even stronger during the quarter, up 5.7 percent with YTD growth of 10.9 percent. If developed and emerging international markets hold their positions, they will be the best-performing risk asset classes for the first time in almost ten years. The MSCI EAFE (developed international equities) continued its rebound and was up 5.5 percent for the quarter and 20.5 percent for the year. Strongest of the major equity benchmarks was the MSCI Emerging Markets index, up 8 percent in the quarter and 28.1 percent for the year.

2017 Q3 Asset Class Returns

Within U.S. equity markets, the strongest performance came from the technology sector, up 8.7 percent in the quarter and 24.7 percent for the year. Market strength was also supported by advances in energy, telecom, materials, financials, and industrials. Health care, utilities and consumer discretionary sectors were also modestly positive in the quarter. Consumer staples was the only negative sector in the quarter. Despite strong growth in the quarter from energy and telecom, these are the only two sectors that are negative so far this year.

2017 Q3 Sector Returns

Fixed income returns remained positive, despite the two small interest rate hikes earlier in the year. US Treasuries were up 0.4 percent for the quarter and 1.6 percent for the year. Intermediate corporate bonds were up 0.6 percent for the quarter and 2.3 percent for the year. Intermediate municipals were up 0.7 percent for the quarter and 3.9 percent for the year. High-yield bonds, benefiting from continued economic expansion, were up 2 percent in the quarter bringing year to date return to 7 percent.

The run-up in high-yield bonds reflects further compression in the interest rate spread. The spread is the difference in yield paid on a Treasury bond and a high-yield (sometimes called “junk”) bond. Some view this spread as an indicator of future economic risk. If we anticipate continued economic strength, we do not recognize significant risk of default from even a low credit quality borrower. As a result, we are willing to buy the low-quality bond for just a small premium of additional income. If we believe the economy will be facing headwinds, we should require a higher increase in income when we buy a lower-quality bond. A contrary viewpoint suggests that investors can be overly influenced by stock market momentum. When markets are in long expansions, we seemingly forget that markets can go down. We forget to price in a premium for risky investments. It may take months or years to know if today’s narrow interest rate spreads were a sign of overly optimistic investors or an appropriate measure of a strong economy.

Effective Fed Funds Rate

While bondholders may seem complacent, many equity investors are feeling uneasy about the possibility of a significant market downturn (“correction”). The length and magnitude of this expansion has many wondering how long this will last. Starting about four-and-a-half-years ago, news headlines have frequently celebrated each new market high. With each new record came the question, “How long will the market’s run last?” While we won’t know the answer until it actually ends, it is helpful to understand how this expansion relates to other market expansions.

Measuring Market Expansions

Using the S&P 500 for reference and examining this market expansion in relation to prior market expansions, we see that the current bull market is one of the longest and strongest. However, it is not the longest nor is it the strongest. This expansion, having started in the beginning of March 2009, has lasted 103 months (8.6 years). That makes it the second-longest expansion. The longest expansion started in November 1990 and lasted until the dot-com bubble burst 118 months (9.8 years) later. To become the longest market expansion, our current growth would have to go for at least another 15 months.

Measuring the return of the expansion, we find a market gain of 243 percent from the prior low in 2009. There have been two greater market expansions in history. The greatest being that same expansion from the 1990s, when the market grew 399 percent. The second-greatest expansion was just after World War II. Beginning February of 1948, the market went up 246 percent in just over 8 years. To become the largest market expansion in history, our stock market would have to go up at least an additional 156 percent.

While the stock market has been growing significantly for a long time, these factors alone do not mean that an end is near.

There are several issues of greater concern than the length and magnitude of the expansion. A troubling aspect of this expansion is that it has left many behind. Real wage growth for non-supervisory workers dropped significantly in the 1980s and has not recovered. Suppressed wages hurt consumers’ ability to sustain growth in spending. The market has also seemingly shrugged off the increase in long-term potential risks from reduced regulations. These include reductions to environmental regulations and consumer protections, as well as regulations focused on preventing the kind of corporate risk-taking that led to the last economic decline. The market has been unphased by the inability of the branches of government to implement previously expected changes, such as building “the wall” or repealing the Affordable Care Act. It is unclear what, if any, portion of earnings forecasts or recent price appreciation is tied to optimism from financial analysts about possible tax cuts.

Growth in Earnings

For most of the last four years of this market expansion, great speculation has focused on the next bubble to burst. Would it be commercial real estate? Gold? The dollar? Or something else? Regardless of when, why and by how much the market retreats, your Veris Wealth Advisor is here to partner with you in structuring a portfolio that incorporates your spending goals across a variety of market cycles.

Addressing Climate Change: The Role of Venture Capital

August 25th, 2017



By Dave Kirkpatrick, SJF Ventures




Being a successful venture capitalist involves backing great entrepreneurs and helping them scale.  Those activities are also important in fighting climate change.

Venture capital firms can identify and commercialize climate solutions that have an impact for the long term. That’s what my firm, SJF Ventures, has been committed to doing since 1999. We’re pleased others have joined us along this journey full of opportunity and risk.

In fact, many Silicon Valley VC funds eagerly entered the cleantech space several years ago, but stubbed their toe and exited the field.  Most of these cleantech VC losses were concentrated in capital intensive companies developing solar modules and biofuels. These companies ran headlong into low-cost Asian solar manufacturers and dropping oil prices.

Yet all along the way, whether it be called ‘sustainable’ or ‘cleantech’ or ‘greentech,’ thoughtful investors have continued to place capital in companies providing climate solutions.  These ventures have developed innovative business models utilizing IoT (Internet of Everything) tech, SaaS platforms, online marketplaces, and innovative chemistry and modular technology.

The Opportunities In Solar

A key focus of ours is investing in solutions that produce much higher levels of renewables, which can contribute to the resilience and reliability of the electric grid. These solutions are showing a path towards a carbon-free energy system through the combination of renewables, energy storage, smart grid, demand response, and electric transport.

We believe there is a significant opportunity in ‘downstream solar’ deployment firms that can deliver lower cost power at utility scale. For example, groSolar, an early national solar developer and installer, was one of our investments back in 2006. The company built 500 KW to 30 MW projects across the country and now leads the distributed energy division of EDF Renewable Energy.  Community Energy (CEI), an early wind developer that has gone on to develop hundreds of megawatts of solar projects in many emerging solar states – NC, GA, VA, MN, CO, PA, NJ, MA, and IN – was one of our investments in 2010.  CEI is responsible for the largest solar project in the Midwest, north of Minneapolis (pictured above), and in Virginia.

Through groSolar and Community Energy, we saw the potential to scale the delivery of low-cost power to states across the country with a mandate to increase renewable sources of energy, as well as utilities and corporate buyers.

In late 2014, we invested in NEXTracker, which had developed an elegant, low-cost, modular tracking system that greatly improves the power production on utility solar plants.  NEXTracker went on to be acquired in late 2015 by Flex and has scaled deployment of clean power globally, with installations in Chile, Mexico, India, Australia, Jordan, as well as the US.  The company has reached 9 GW of renewable energy capacity installed, including the largest North American project, a 750 MW installation in Mexico.

NEXTracker is a great example of the export opportunity for U.S. firms under the Paris Accord to assist developing countries for the low-carbon transition. Recent developments show countries like India, where NEXTracker has already sold 1 gigawatt of trackers.  India has canceled plans for coal plants and is committed to scaling low cost renewable energy generation.

In October 2015, we wrote 100% Clean Energy – the new Zero Waste.  Since then, many more companies have committed to 100% renewable power, including Facebook, IKEA, Apple, Walmart, Starbucks, UBS, Microsoft, Salesforce, HP, H&M, Goldman Sachs, and GM.  Solar and wind are often the lowest cost power option, cheaper than new fossil fuel power.  We have some threats to the US solar industry, such as the Suniva/Solar World trade dispute that may result in higher solar panel prices by later this year. Long-term, the continued trend should be towards lower cost, reliable power.

Clean power reliability will be strengthened by the recent drop in battery costs driven by electronics and electric vehicles.   Low cost batteries are enabling large-scale solar, plus megawatt scale energy storage, to become competitive with peaking natural gas plants that switch online when energy demand peaks.

There is so much more to be done in combating climate change, but we’re making real progress. If we can align policy consistent with the Paris Accords along with visionary entrepreneurs and investors, we can and must accelerate that progress.

Dave Kirkpatrick is Co-Founder and Managing Director of SJF Ventures.



Photo Credit: Bureau of Land Management. Used under CC BY 2.0 license.

10 Years Later – Headed Toward a Brighter Future

August 4th, 2017

by Anders Ferguson, Partner

As Veris marks our 10th anniversary we are optimistic. We’re emboldened by the fact that we launched in the worst global financial crisis since the Great Depression, and we succeeded because our clients’ demand for impact investing solutions is so strong and our team so committed.

We’re also optimistic because we see that impact investing and Veris are part of a much larger transformational ecosystem steadily gaining momentum. This ecosystem is advancing sustainability in business, investing, and society as a whole. It is pragmatically hopeful and touches most everything, large and small. It is self-organizing, ever expanding. It is guided by science, economics and spirit. Each part adds positive energy to this ever-expanding ecosystem. At work, at home.

This excerpt is from our recently published book celebrating the 10-year anniversary of Veris Wealth Partners. 10 Impacts In 10 Years is the story of our contributions to the world of impact investing and the heartening journey of our team. We created this reflection to recognize our clients and the collective progress we have made.

An Impactful Vision

In marking this milestone, it’s useful to start at the founding of our firm.

Ten years ago, the Veris founders – five entrepreneurs, including two impact investing advisory businesses – came together with an idea and a dream: To create a national Impact Private Wealth Management firm. The objective was to serve the growing needs of families, individuals and family foundations who want to go “all in” to create financial performance and impact with their wealth.

We felt a new day was emerging in which sustainable business and sustainable investing would integrate and change the way business operates and capital was invested. Ours was a vision in which sustainable businesses could change the world, and investors would choose to fund sustainable companies because they are the innovators and can deliver both financial performance and social benefit.

We believed, as did Generation Investment Management and others, that we were at a tipping point.  No longer would Socially Responsible Investing be primarily about what companies shouldn’t do. Instead, sustainable and impact investing focused on what companies could do to create positive change, by understanding the drivers of great companies and transformative businesses.

We wanted to be part of this new ecosystem, aptly described by the United Nations, “Business as an Agent of World Benefit.” We also understood that many of the world’s most pressing challenges could not be addressed via business alone.  That investing in NGOs and Community Banking was a critical part of building affordable housing, providing solar energy or clean drinking water in the villages of the world, and for empowering women through micro-finance.

A Vision Turns To Reality

With these dreams, plans, and thankfully a couple of hundred loyal clients, in August 2007 Veris opened our doors for business – just as the great financial crisis was beginning.  There were 10 of us, and we managed about $350 million in assets, mostly on the East Coast. In the following decade, we developed and grew our San Francisco office, and more recently created a Boulder office.  We are now 23 people. Amazingly, on June 13, the day of our 10th anniversary celebration at the Rubin Museum in New York, we hit $1 billion in assets under management.

We set out to be an independent firm, so we could stay completely focused on our clients, their needs and the kinds of impact investing they wanted across their entire portfolios. Importantly, we wanted to develop impact investments for all assets classes.

We also wanted to help steer our broader industry toward sustainable and impact investing.  And we knew that if we stuck to our mission –  if we didn’t mix up every type of investment style that might make excess returns – that Impact Investing would grow strongly.

We’ve done just that, and in the process, we have built dynamic  partnerships in our industry. We have been joined by many new families and their foundations seeking impact private wealth management. They want to achieve this with a firm of like-minded professionals and fellow investors who share their passion for what’s possible.

A Year Of Celebrations

To celebrate and honor our clients, partners and employees, Veris has been holding celebrations and client learning meetings at each of our office locations. The first was in New York on June 13 at the Rubin Museum, and our second was in Portsmouth, New Hampshire on July 18. Our third will take place in San Francisco on September 26.

In Manhattan, 160 attended. We were very appreciative that many of our guests traveled for hours; many flew or came by train. The full-day event featured presentations from three of our Founders, Patricia Farrar-Rivas, Michael Lent and Steve Fahrer on “how we got here, what we have accomplished, and where we are going over the next decade.”

Lisa Woll, CEO of US SIF, the sustainable and impact investing trade association, provided an overview of the extraordinary growth of our industry over the last decade.  From less than 10% of US assets managed for impact, to 25% and nearly $9 trillion today. One of the highlights of the day was a lengthy and weighty discussion with a multi-generational family who have worked with Michael for more than 20 years. The very reflective parents and their equally thoughtful Millennial children shared their common journey to impact investing, philanthropy and integrating their wealth into their lives.  There were many damp eyes as people pondered how all these questions might play out in their families, or even if they could really have the conversation.

Also well received were our five client-led breakouts on our key thematic areas: Gender Lens Investing, Community Wealth Building, Sustainable Food & Agriculture, Climate Solutions, and Millennials.  The passion shared in these intimate sessions were inspiring for us all.

I was personally thrilled to lead a conversation with Deval Patrick, Managing Director of Bain Capital’s new Double Impact Fund and the former Governor of Massachusetts. Deval was extremely articulate in explaining his shift from leading a state to building an impact investment fund at a very traditional private equity firm. He shared his hopes and his worries.  And he reminded us change-makers “that too often we whisper our successes, while we shout out our failures.”

On July 18, we had another terrific event.

Nearly 100 clients, colleagues and friends came to the Veris Portsmouth 10th Celebration and Farewell Gathering  for David Hills, a founding partner.  It was a very special night supported  by compelling remarks from keynoter Greg Watson, Director of Policy and System Design, E.F. Schumacher Center for a New Economics. Greg was formerly Secretary of Agriculture for Deval Patrick during his term as Governor of Massachusetts. Greg demonstrated that a lifetime of service in sustainable food and agriculture, both urban and rural, renewable energy, and creating more inclusive communities can be integrated for promising results.

Then, in a fireside chat, Veris partner Nicole Dolan discussed global and local sustainable business solutions for creating business as a force for change with Brad Sterl, founder and CEO, of Rustic Crust and Ken Locklin, Director, of Impax Asset Management. Rustic Crust is a New Hampshire company invested in by three Veris fund managers. Sterl provided a perspective on rural community job creation and sustainable food solutions.  Impax sub-advises the Pax Global Environmental Market Fund and Locklin offered a global market perspective on energy efficiency, renewable energy and climate solutions.  The audience was struck by the clarity that risk-taking and entrepreneurship drive real, positive change – be that in global solar projects or baking the best organic pizza dough in the U.S. from a rural New Hampshire town.

Perhaps the most poignant part of the evening was partner Alison Pyott’s farewell to David Hills, a founding Veris partner who has recently retired from the firm. In a heartfelt tribute, Alison and David recounted their collaboration, dilemmas and joys over the past decade working together and with clients. David shared some of his pioneering efforts over his 30-year career in impact investing and the depth of friendships he created. They made a bet who would tear up first. David lost.

Looking Ahead

In closing, I wanted to share the following excerpt is from our 10th anniversary book. It sums up how the team at Veris feels about the future.

To our clients, employees, colleagues and friends: Thank you for your support over the years.  We depend on the depth of your wisdom to do our work better. And to learn together.

We are optimistic as we head into the next decade, despite significant challenges.

 We’re hopeful because a new generation of investors and business leaders actively believe and demonstrate that sustainability and impact investing works! We are finally approaching the tipping point where this new generation sees the management power of sustainability.  They understand that Sustainability = Innovation.

We are also hopeful because of the unstoppable tide of impact in business-driven innovation. These companies invest in people, communities, creativity, and transformative technologies.

We know some don’t chare our optimism. We know the enormous challenges in front of us could thwart us. However, the wind in now at our back. Just 10 years ago, it was blowing against us.

Economic Perspective Q2 2017

July 28th, 2017

by Steve Fahrer, Partner

An important milestone occurred in the second quarter. No, it wasn’t that the S&P500 and the Dow Jones Industrial Average made new highs during the quarter. Nor was it that the stock market went 12 months without a 5% correction. If you were thinking the milestone was the Federal Reserve raising the Federal Fund Rate to 1.25%, the highest it has been since 2008, you would unfortunately be wrong again.

No, the big milestone was that in March and April, U.S. monthly renewable energy production exceeded power provided by nuclear energy plants for the first time since July 1984 according to the U.S. Department of Energy. This is a big milestone.

The U.S. Energy Information Administration reported that spikes in hydropower, wind and solar, coupled with a dip in nuclear production led to the change during those two months. Hydropower also reached its highest production in six years due to record precipitation and snowpack in California. For the year, nuclear will likely out-produce renewable energy, but this promising trend seems to only be growing.

Next stop will be when renewable energy surpasses coal, despite the President’s hostility toward climate action. Pulling
out of the Paris Accords cannot stop the rising use of renewable energy. The heartland of America is producing massive
amounts of wind-driven power and exporting electricity around the country, even though their Governors often do not
believe in global warming. Renewable energy makes good economic sense. It is unstoppable.

Speaking of coal, it has also come to light that the number of coal mining jobs lost in West Virginia and Appalachia is only
a small fraction of the number of jobs created nationally by the Affordable Care Act. There is no telling the economic
displacement if the Affordable Care Act is repealed. Fortunately Obamacare also provides healthcare benefits for coal
workers suffering from long years working underground in the mines. The balance of 2017 will probably indicate whether
the U.S. keeps some delivery system for affordable healthcare or not.

As it turns out, healthcare represents 17% of U.S. Gross Domestic Product. Big cuts in Obamacare threaten millions
of Americans’ health and economic wellbeing. This is not to say that we don’t overspend on healthcare. A single-payer
system may be more fiscally responsible, but repeal is not the answer without a better replacement. Severely cutting healthcare benefits will not lead to 3% growth in GDP.

2017 Q1 Asset Class Returns

The second quarter was positive for the stock market despite the third increase in the last nine months to the Federal Reserve’s Overnight rate to 1.25%. Fears of even higher rates slowed the rise in the S&P500 to 3.09% in the second quarter from 6.07% in the previous quarter. Yet, as short-term interest rates rose, longer rates such as the 10- year Treasury bond, a bellwether, have not risen in tandem, indicating that the bond market thinks the economy is so-so. On the other hand, the stock market proclaims, “We are the only game in town!” For a change, the U.S. stock markets
did not dominate. International stocks as measured by the MSCI EAFE returned 6.38% and the emerging markets in
aggregate also outperformed the S&P500.

2017 Q1 Sector Returns

The economy remains in a 2% growth mode and the goal of 3% growth proclaimed by the President is out of the question for now. We continue to see a slow growth economy ahead, growing closer to a rate of 2% annually than 3%. If the promises of the Trump Agenda for lower personal and corporate taxes as well as tax breaks for U.S. companies holding dollars overseas don’t pan out, we may see some turbulence in the financial markets. A slow growing economy with inflation under 2% does not call for higher interest rates. Even though the economy looks to be approaching full employment, wage increases are tepid. It is doubtful the Fed will raise rates much higher unless the economy picks up steam. If interest rates rise slowly or not at all, the stock market should trudge higher. Enjoy your summer while you can.

Signatory Letters for Impact

May 19th, 2017

by Danya Liu, Associate & Pat Addeo, Senior Associate

The power of a united voice cannot be overstated. This has been particularly evident over the past few months, during which we have witnessed a wave of political, social, and environmental activism. Some voices we agree with, some we don’t. But what we can all recognize is that standing up for your values is important. In that spirit, we would like to share how Veris is exercising its voice on behalf of clients through what is known in the investment world as a “signatory letter.”

Signatory letters are a way for shareholders, stakeholders, and any other concerned parties to voice their opinion about a particular issue. Signatory letters can express support or opposition for a given government policy or corporate rules/regulations/actions that impact our environment and society. Veris collaborates with people across the country to deliver clear, strong messages targeting the values and causes shared by our clients and the firm.

These letters can originate from nearly anyone, including investors, religious groups, academics. It’s important to note that the general public is an extremely important stakeholder in any company or policy decision. Often, a lead investor will author an opinion letter on a certain issue, and interested parties will join as signatory to amplify the message.

Earlier this year, we were signatory to a letter urging the Securities and Exchange Commission to reconsider the suspension of the Dodd-Frank Conflict Minerals Rule. This rule, which requires U.S. companies to address conflict mineral risk in their supply chains, has already positively impacted the mining sector in the Democratic Republic of the Congo and reduced the flow of money to militia groups in that region. Conflict minerals disclosure is integral to risk assessment and needs to be enforced not only for the good of the investor, but for the good of the communities affected. Eliminating the Conflict Minerals Rule will energize our community to push back further.

Child miners as young as 11 in eastern Congo – Kaji *

We also participated in a letter to the Trump administration to express continued support for key benefits of the Affordable Care Act, namely the expanded coverage for millions of previously uninsured Americans. Access to reliable, affordable health care is essential for vibrant, productive communities, and we urged the administration to expand quality care coverage to all Americans.

Paris marches for climate justice as COP21 concludes **

And finally, in August of 2016, we were signatory to a letter urging the G20 leaders to commit to climate action. Veris was one of 130 businesses and investors to re-affirm its deep commitment to addressing climate change through the implementation of the historic Paris Climate Change Agreement. We asserted that governments have a responsibility to work with the private sector to ensure the expedient transition to a low-carbon, clean-energy economy.

As we come across other social or environmental issues, we will continue to raise our voices and advocate for our values.


Photo Credits:

*Lezhnev/ENOUGH Project. CC BY-NC-ND 2.0

**Takver. CC BY-SA 2.0

Uncommon Conversations: Rich and Timely

May 4th, 2017

By Patricia Farrar-Rivas, CEO

A while ago, I had a provocative conversation with two good friends: Rha Goddess, founder of Move the Crowd, an organization that supports entrepreneurial training for next generation movers and shakers, and Jessica Norwood, founder of Runway Project, aiming to solve the “friends and family” seed funding gap for African American entrepreneurs.

We talked about how many of the issues we face in our country today stem from inequality, lack of inclusion, and biased narratives around people of color. By the end of the conversation, we all recognized these types of reflective conversations are vital in moving us toward inclusivity.

We also felt compelled to create opportunities where this kind of dialogue could happen more frequently.

So Rha, Jessica and I began hosting Uncommon Conversations, a series of intimate gatherings over dinner to discuss how to reshape the prevailing cultural narratives and determine what active part impact investing can play.

Uncommon Conversations tries to bring in a range of diverse voices, including artists, investors, entrepreneurs, and community leaders. Together, over a shared meal, we explore new ideas and discuss the importance of resilient, inclusive cultures.


Tackling Big Issues

Our series began in Baltimore, during the 2015 Social Venture Network Gathering. We convened an amazing group of change-makers and influencers to answers questions like:

  • What is the potential of transforming culture through impact investing?
  • How do we begin to see culture as part of our strategy for impact?
  • What does a society that embraces cultural differences look like?
  • What does it mean to shift real power to the voices and experiences that shape our culture?

The words of the phenomenal author and social activist the late Grace Lee Boggs centered our conversation and provided true inspiration for the group. Grace led a life infused with critical conversations and demonstrated that they are an important thread of movement building. Guided by her extraordinary legacy, we used our time to enjoy the process of new ideas and new meanings being formed.

Next, we moved to New York and Los Angeles, where we asked guests to reflect on our responsibility to shape and mold the country’s culture. We viewed a beautiful video of Nina Simone, who talked about the role we can all play in making progress to inclusiveness. We also reviewed the work of the renowned artist, Frida Kahlo. Her story of strength in creativity is still relevant today, and it provided inspiration for the evening. Frida managed a life of complexity, while embracing the duality of self. These two cultural icons anchored our conversations as we shared ideas and reflected on these questions:

  • How will we be responsive to culture in a way that reflects the imperatives of our times?
  • Are we supporting meaningful financial and entrepreneurial lanes that open up space for the molders and shapers or are we requiring assimilation?


Food Is Love

Nothing illuminates culture quite like food, which was our focus for Uncommon Conversations San Francisco. Our venue for the evening was 18 Reasons, a community cooking school supporting individuals and families discovery good, healthy, affordable food. The food we eat tells the story of where we come from and where we’re going. It determines our health and how we survive. As the demand for more local, organic food increases, we can’t ignore that the people who bring us our food from factories, kitchens, and fields often can’t afford to eat the food themselves. We challenged ourselves to consider:

  • What is our responsibility to making the country’s food system equitable for workers in the industry?
  • How do we provide broad ownership and advancement opportunities in food systems?

More recently, we convened Uncommon Conversations at the Confluence Philanthropy annual gathering in New Orleans, cohosted with Dillard University’s Ray Charles program in African American Material Culture. Our conversations centered on supporting women and girls through the arts, and touched on themes including some of the controversy around artistic expression and how to keep stories alive with art. Big Chief Delcour from the Mardi Gras Indians shared his experiences as a cultural leader with us. Another artist, B Mike, stunned us with his larger than life artworks capturing African American heroes and New Orleans locals (see title image).

We feel, and have felt for a while, there has been an accelerating cultural shift cultural shift towards inclusiveness with regard to gender equality, equity, and agency for people of color. Lately, we’ve all witnessed a very quick and rapid change in the predominant narrative around this hard-fought progress. It is our belief that the underlying cultural shift towards inclusivity is still happening, and it is strong. The question we need to answer is this: “How do we shift the predominant narrative?”


Pressing Ahead

The richness of the Uncommon Conversations is a treat in and of itself. But our goal is for these conversations to inspire more individuals, especially impact investors. We want them to think about how they can support cultural entrepreneurs and movements. Ultimately, we want to build frameworks that integrate culture, inclusiveness, freedom, and agency into economic analyses.

We are in an unprecedented moment of change. As we explore the intersection of impact investing and culture, we deepen our collective understanding of what impact really means. We can identify new ways to disrupt our cultural norms and invest in equitable and culture shifts that are equitable and inclusive.



Economic Update Q1 2017

May 4th, 2017

by Jane Swan, CFA, Senior Wealth Manager

Equity market returns in the first quarter were very strong. Investors were seemingly unfazed as political commentators vacillated between exuberance and doubt over the potential for the Trump presidency to advance tax cuts and other pro-business policies. The S&P 500 (U.S. large cap) was up 6.1 percent. The Russell 2000 (small cap) was positive at 2.5 percent. The MSCI EAFE (developed international equities) rebounded and were up 7.4 percent. Strongest of the major equity benchmarks was the MSCI Emerging Markets index, up 11.5 percent in the quarter.

2017 Q1 Asset Class Returns

Within equity markets, the strongest performance came from the technology sector, up 12.6 percent. After technology, the best-performing sectors were consumer discretionary, health care, and consumer staples up 8.45 percent, 8.37 percent, and 6.36 percent respectively. Only two of the ten sectors were negative. Telecom was down 4 percent and energy was down 6.7 percent. Positive earnings forecasts for the year are largely dependent on growth in earnings from the energy sector. The declining price of oil and weakness in the energy sector ordinarily casts a more negative pallor over the market.

2017 Q1 Sector Returns

Fixed-income markets were positive despite the interest rate hike at the March meeting. Tepid but consistent economic growth, low unemployment and a slight increase in inflation compelled the Federal Reserve to raise the Fed Funds rate by a quarter of a percent to the range of ¾ to 1 percent. The statement also foreshadows future rate hikes by year-end. The small rate hike did not impact longer maturities, as the yield curve flattened. This flattening reflects a disagreement between the bond market and stock market about the likelihood of a significant economic expansion. Fixed-income markets ended the quarter just barely positive after negative returns in the end of 2016. Treasuries were up 0.8 percent. The yield on the 10-year Treasury was almost unchanged at 2.39 percent from 2.45 percent at the end of 2016. Corporate bonds were up 0.8 percent. Intermediate munis were up 1.9 percent. High-yield bonds were up 2.7 percent in the quarter.

As we look at market behavior and reaction to political environment, there are a number of factors we carefully consider. Thus far, the majority of investors appear to react favorably to political statements and promises by the Trump administration that are business-friendly. At the same time, investor reaction has been muted to setbacks in the administration’s agenda. The market rallied in early March as debate began over a bill repealing and replacing the Affordable Care Act (ACA), but was flat the week the bill died without reaching a vote. Many business-friendly tax reforms are dependent on cost savings from the rollback of the ACA. However, the lack of reaction suggests that the market still believes significant tax reform can be achieved. Likewise, with a significant portion of earnings growth expected from the energy sector, declines in the price of oil and related earnings expectations for energy companies have not yet caused a drag on the market. Many of our clients have limited direct exposure to the energy markets, but a significant shock in this sector would have repercussions across the market.

With the initiation of many expected rate hikes, fixed-income investors are anxious about their portfolios. Interest rates have an inverse relationship with bond prices. This means that when interest rates go up, the prices of previously issued bonds declines. The decline in prices occurs because the increase in rates enables new bonds to pay higher rates than the previously issued bonds.  The sooner a bond matures (the shorter the bond’s duration) the less likely the bond will experience a price decline when interest rates rise. Conversely, the further away the maturity, (the longer the bond’s duration), the greater decline in the bond prices when interest rates rise. Bonds with a longer duration pay a higher current yield than bonds with low duration, but they also carry more risk and suffer more when interest rates rise.

Many investors look to the bond portion of their portfolios primarily for stability and preservation of capital. Declines in this asset class can be uniquely disconcerting. In the persistently low interest rate environment of the past decade, many investors have grown frustrated by low yields and have turned to longer durations or lower credit quality (high yield, also known as “junk” bonds) to increase income from bonds. Because these bonds have greater potential to fall in value as interest rates rise or credit quality declines, understanding this risk is important.

For investors using bond funds, there is a possibility that a decline in prices of existing bonds from interest rate hikes will cause panic selling among investors. Investors using laddered bond portfolios (a series of bonds over a spread of years that are held until the bonds mature) may have more control than bond fund owners. Fluctuations may not have a real impact on the investor. As we consider the options for bond investments for our clients, we look to find the best fit for their financial and impact objectives. Where individual bonds have the benefit of allowing the investor to limit realized losses by holding bonds to maturity, individual bond portfolios are almost always less diversified than bond funds. While bonds can theoretically be traded at any time, bond trading is significantly less efficient than stock trading. Transaction expenses for small bond denominations are expensive. Remembering that the primary purpose of a bond allocation is preservation of capital, the diversification through a bond fund should be balanced with the ability to control against losses from rising interest rates. For investors who do not have a large enough bond allocation to appropriately diversify their bond holdings, bond funds are often a better choice than owning an insufficiently diversified bond portfolio.

Your Veris team knows that uncertain times are unsettling to investors. While we continue to keep abreast of possible and unpredictable impacts from policy changes, we focus on our clients’ long-term goals. Our sustainability core-values help filter short-term noise in the financial markets without losing sight of the long-term risks and opportunities.


Economic Update Q4 2016

February 8th, 2017

by Jane Swan, CFA, Senior Wealth Manager

As the market adjusts and tries to make sense of the results of the U.S. election, financial markets have been mixed. After an initial decline in futures markets on election night, the S&P 500 (U.S. large cap) rose 3.8 percent in the quarter, bringing total return for the year to 12.0 percent. The Russell 2000 index (U.S. small cap) had another strong quarter and was up 8.8 percent for the quarter, or 21.3 percent for the year. International markets were less enthusiastic. The MSCI EAFE (developed international markets) slid 0.7 percent for the quarter, bringing year-to-date to a positive 1.5 percent. Emerging markets, the best performing asset class of the prior quarter, were down 4.1 percent in the final quarter, but were up 11.6 percent for the year.

2016 Q4 Asset Class Returns

PMC Capital Markets Flash Report for periods ending Dec 31, 2016

Investment grade domestic fixed-income markets, which had rallied in the prior quarter, gave back much of their gains. U.S. Treasuries returned a negative 3.0 percent in the quarter, driving down year-to-date returns to a positive 2.7 percent. Corporate bonds fell 2.1 percent for the quarter, but up 2.1 percent year-to-date. Municipal bonds were down 3.7 percent for the quarter and 0.5 percent for the year-to-date. Excluding investment grade issues, high-yield bonds finished the year up 1.8 percent for the quarter and 17.1 percent for the year.

Within the large cap market, the sectors potentially benefitting from deregulation saw the largest gains.  The biggest winners:  Financials (up 21.1 percent for the quarter, 22.8 percent for the year), Energy (up 7.3 percent for the quarter, 27.4 percent for the year) and Industrials (7.2 percent for the quarter, 18.9 percent for the year). Not far behind were Telecom (4.8 percent for the quarter and 23.5 percent for the year) and Materials (4.7 percent for the quarter and 16.7 percent for the year). Each of these sectors have seen progress on environmental or consumer protection regulations in the last eight years. The market suggests that profits have the potential to be higher (at least in the short term) with less government regulation.

Weaker returns came from sectors mostly thought to have less potential benefit from deregulation. These include Consumer Discretionary (up 2.3 percent for the quarter, 6 percent for the year), Technology (up 1.2 percent for the quarter, 13.9 percent for the year) and Consumer Staples (down 2 percent for the quarter but up 5.4 percent for the year. Utilities had almost no change in the fourth quarter after three strong quarters in 2016. They were up just 0.1 percent in the quarter but 16.3 percent for the year. The worst performance came from Health Care sector, which was down 4 percent in the quarter and 2.7 percent for the year. The uncertainty over the fate of the Affordable Care Act triggered uncertainty about profits for the sector.

2016 Q4 Sector Returns

PMC Capital Markets Flash Report for periods ending Dec 31, 2016

Looking Ahead

With a new administration now in place, we look at each sector to understand how markets may be affected by both political and economic forces. The energy sector, heavily impacted by oil-related businesses, is an instructive place to start.

The significant rebound in energy stocks last year happened despite dramatic a year-over-year decline in the sector’s earnings (currently estimated at -66%). Because stock prices tend to express expectations of future earnings, the rise in stock prices is a reflection of the expected significant increase in earnings for companies in the energy sector. The chart below shows current earnings growth forecasts for each sector over the next two calendar years. The estimates for extraordinary forecasted growth in earnings within the energy sector stand out. They are expected to exceed 350 percent. In fact, the forecasted earnings growth has little to do with potential policy or regulation changes under the Trump presidency. The 2017 forecast has changed very little from its pre-election forecast from September 30, 2016.

The anticipated increase in oil stock earnings is instead tied to the expectation that oil will to rise to about $56 by the third quarter of 2017 from a low of $33.69 in the first quarter of 2016. This forecasted increase is expected to boost energy sector earnings from $4.3 billion in the third quarter of 2016 to $14.0 billion in the third quarter of 2017. The price of energy stocks today factor in these expectations. Changes to these expectations, either positive or negative surprises, could further impact the returns of energy stocks. It is important to note that while the current value of energy stocks appears very positive that: 1) globally the majority of new electric generating capacity is solar and 2) grid parity prices for solar and wind are now below fossil fuels throughout Developing world and will at parity in the U.S. over the next 5 years.  Finally Bloomberg’s analysis tags 2020 as the year oil consumption peaks globally.  These are amazing transformations that are not turning back.

Earnings Growth Forecasts by Sector

FactSet Earnings Insight, January 13, 2017

The price of oil is a function of many factors. One key variable is the value of the dollar. (Oil is priced in US dollars.) When the dollar is strong, it weakens the price of oil. An unanticipated change in the strength of the dollar could have a meaningful impact on the current earnings forecasts. Changes to fiscal and monetary policy, as have been hinted at by the incoming administration, could also impact the strength of the dollar.

Oil Prices vs. Strength of Dollar

Board of Governors of the Federal Reserve System (US), Trade Weighted U.S. Dollar Index: Broad [TWEXB], retrieved from FRED, Federal Reserve Bank of St. Louis;, January 18, 2017.

Another key factor affecting oil prices is supply and demand. Some of price declines in recent years can be attributed to the high supply coinciding with decreases in demand for oil. Supply has been high because OPEC has maintained elevated production levels. Natural gas and energy from renewable resources have taken share of total demand away from both oil (petroleum) and coal. Expectations for oil prices to increase this year rest heavily on assumptions of a weakening dollar and a decrease in OPEC production.

Primary U.S. Energy Consumption by Source

U.S. Energy Information Administration

The impact of tax incentives proposed by the new administration and Congress are uncertain at best. This may not change the business case for renewable. As oil gets more expensive, the interest in sourcing energy from natural gas and renewable energy would be expected to rise. When oil is relatively cheap, as it has been, tax incentives have helped make the financial case for investment in renewable. Moreover, 365 U.S. companies made urged the president-elect to continue participation in the Paris climate deal, citing the business and job creation aspects of climate protection economies. While short-term returns may be volatile and unpredictable for the next few years, there remains a long-term business case for ongoing investments in renewables.

As we look to the broader economy, Veris’ areas of thematic impact focus, and at vulnerable communities, we see important roles for city and state governments, impact investing and philanthropy. Cities and states continue to lead in raising the bar in areas ranging from increasing the minimum wage to addressing climate change. Shareholder advocacy and active investing can replace some of what may be lost by decreased government regulation. Investment in sustainable businesses can address climate change and building healthy communities. With many non-profits relying on government grants for significant portions of their annual budgets, increased reliance on philanthropy is expected. Clearly in this transition in Washington we see the importance of redoubling the effectiveness of impact investing strategies. And we need to remember that for the last 20 years we have collectively been changing the face of business and finance for the better. Impact investing plays an ever bigger role.  We appreciate our opportunity to engage in this work with each of you.

Analyzing The Phenomenal Growth Of Impact Investing

November 17th, 2016

By Michael Lent, Partner, CIO

US SIF: The Forum for Sustainable and Responsible Business released its 2016 Biennial Report on US Sustainable, Responsible and Impact Investing Trends, and there was much good news in it.

The report, issued on Nov. 14, found that over $8.72 trillion in assets – or one in five dollars invested under professional management in the US – are now invested using sustainable, responsible and impact investing criteria.  This total is up 69% from 2014.  There are now hundreds of investment options across all asset classes a trend that has been growing substantially over the past several decades.

This is truly remarkable, but it wasn’t so long ago that things were very different.

When I began my career, Impact investing was in its infancy.  I remember attending a Council on Foundation conference in 1995 with a dozen foundation representatives discussing what we called back then, “Socially Responsible Investing.”  Twenty-one years later, I spoke on a panel at the Mission Investors Exchange conference, presenting to several hundred foundations and close to five hundred attendees focused exclusively on impact investing.

In the intervening 20+ years, Impact Investing went mainstream. Institutional investors are incorporating ESG (Environmental, Social and Governance) factors into their investment process, and traditional investment management firms are increasingly offering ESG investment options.

At the same time, companies around the globe are rapidly integrating sustainability into their core business models to increase their competitiveness, innovation and lower risks. We are moving from a time of carrot and stick approach to corporate change.  Increasingly we have sustainable companies receiving investments from impact investors.  This is a virtuous cycle and it is important to put into perspective how far we have come. We’ve come a long way.

Underlying Trends

In my view, three key trends were made abundantly clear in this report.

First is the rapidly growing interest in climate investing. More than $2.15 trillion of institutional assets apply climate change criteria.  This is a manyfold increase, and it reflects a growing awareness among large institutions about climate change risk.  Institutional investors’ increasing focused on this issue could lead companies to track their carbon output, to identify ways to lower it, and to provide innovative, low-carbon products and services.  It is one reason to have optimism about the future of the planet, despite the recent election results.  As a strong supporter of climate change solutions, we help many clients divest from carbon intensive industries and invest in other solutions.

Second is the growth of the community investing field.  The assets invested in Community Development Financial Institutions have doubled from $60 billion to $120 billion in two years.  These are the credit unions, banks and community loan funds that provide financing for critical affordable housing, social services, and small businesses in low-income communities and communities of color.  Historically, CDFIs have received most of their funding and capital from public sources or from banks and insurance companies under the Community Reinvestment Act. On a very hopeful note, private investors significantly increased their assets in community investing. There are great social, environmental and economic challenges in low-income communities. Access to capital is essential to long-term change in these communities.

Third, while a significant number of managers and investors say they are implementing ESG, it is not clear exactly what that means.  As an industry, there is definite room for improvement and transparency. Today, many managers are not specific about how they integrate ESG factors into their investment process. This vague application of ESG criteria is due to the lack of deliberate investment process. Some funds and managers want to be seen as “doing ESG investing to respond to client demand,” but are unsure of what to do.  For investors, you cannot simply pick an “SRI” fund and be satisfied that it actually has social impact. You must also understand what the manager is really doing to create impact.

Where We Go From Here

Looking ahead, I think the US SIF Trends report brings up four things we should think about:

  • While we have made great strides in offering more investment options, we still need more investment solutions across different impact themes, such as Gender Lens Investing, sustainable real assets, and on broader ownership strategies.
  • We need greater transparency from ESG managers and funds, so we can understand if they are actually having any impact. It’s not enough to say we do SRI. Investors need to know what and how managers are creating impact.
  • Investors shouldn’t underestimate the importance of finding a wealth manager or advisor who understands the impact field. There is a fair amount of complexity and a need to sort out the managers and funds that best fit your specific financial and impact goals.

The good news is that we’re making real progress in changing the way people and institutions invest.  Together, we can keep it going and bring about even more positive change.

To read Veris white papers on climate change, gender lens investing and other topics, please visit the Research section of our website.


Photo Credit: Ronald Tagra