Optimism that Leads to Achievement: A Letter from Patricia Farrar-Rivas and Stephanie Cohn Rupp

“Optimism is the faith that leads to achievement. Nothing can be done without hope or confidence.” ― Helen Keller.

After a tumultuous 2020, the world saw a shocking beginning to 2021. Despite the heartache and political and economic volatility we have seen signs of resilience that inspire optimism. We are optimistic, but understand we must all do our part to rise to the challenges of this moment. This dark time has led Veris Wealth Partners to become even more staunch in our commitment to growing equity and social justice and environmental solutions through impact investing.

Today, jointly as leaders of Veris, Patricia Farrar-Rivas as founding CEO and Stephanie Cohn Rupp as incoming CEO, we wanted to take stock of this last year and share with you some of the highlights that are fueling our optimism, as well as our vision of what Veris hopes to achieve with our incredible clients, managers and partners in 2021.

Our Efforts In 2020

Externally, Veris:

Internally, Veris:

  • Lived our values by remaining 100% impact focused.
  • Transitioned fully to remote work to protect the health of our staff during the pandemic, while also growing our asset base by over 11%
  • Renewed our commitment to independence in the face of staunch market consolidation to preserve that very mission.
  • Veris has started a complete review of its policies and processes to ensure we are aligned with best practices around Equity, Diversity and Inclusion
  • Finalized an internal succession planning effort by promoting two new Partners as two Founding Partners retired.
  • Successfully transitioned leadership from Patricia to Stephanie after collaborating for over 18 months with dedication and openness to honor our past while investing in our future.

While these may seem like two distinct spheres of our firm – our work externally, and how we run our business internally – they are really two sides of the same coin. We could not be an authentic B-Corp focused on social and environmental impact without concurrently implementing these values internally and staying the course of our ideals.

Unlike many financial institutions, we have recommitted to our long term independence and to remaining focused on solving social and environmental challenges, which requires both financial and business acumen. Veris set an important precedent as a 100% impact focused investment advisor while becoming a profitable business capable of reinvesting in its own growth and maintaining on-going succession mechanisms of retiring partners and advancing employees to become partners. All these goals are intimately linked to protect our independence which allows us to stay true to our mission.

Updated Values and Investment Themes

In 2021 Veris will remain focused on authenticity, independence, and our mission. To better serve that mission, we have updated our firm’s values to better reflect who we are today and demonstrate the principles that guide us. We have also updated and refined our investment themes to better meet the most critical challenges of today. Veris is well known as the first Registered Investment Advisor (RIA) to have led Gender Lens Investing as an approach and now we are working to develop a more robust investment platform with solutions focused on Racial and Gender Equity. We also aim to expand our work around Regenerative Agriculture and Renewable Energy Infrastructure solutions and added a theme dedicated to Community Wealth Building to ensure more emphasis on this challenge and potential solutions.

What We Aim to Achieve in 2021

We aim to grow our impact assets under management in 2021 while we continue to serve our clients with a focus on partnership. We will leverage digital solutions to make the experience of wealth management simpler and more interactive. In partnership with Confluence Philanthropy, USSIF, CERES, As You Sow, RFK, Nexus, GIIN, B Lab and many other crucial players in the sector, we will collaborate extensively with the field of sustainable and impact investing. We believe that to build a more equitable, just and sustainable world, we have the responsibility to leverage not only investing but also shareholder activism, policy and dialogue to ensure we effectively pursue our mission.

We look forward to collaborating with our clients and colleagues in the sector, furthering the mission of our firm and our clients, and continuing to fight for social justice and the environment. Together, we will work to ensure that 2021 yields a brighter future for us all.


PG&E, Climate Change and the Sustainable Path Forward

By Anders Ferguson

The failure of Pacific Gas & Electric (PG&E) to provide power safely to Northern California has been a human and economic nightmare, while highlighting the ineffective regulatory oversight of the investor-owned utility.

But as tragic as this has been, the fallout has created new momentum for a safer, greener era of power generation and distribution in the Golden State and potentially elsewhere.

The Path Forward

In our view, the path forward is predicated on two key ideas inspired by innovation and technology:

  • Adopting new models of ownership and governance for regulated electric utilities that move away from monopolies like PG&E and embrace community-owned utilities;
  • Rapid deployment of renewable energy and utility-scale storage technology to reduce reliance on the grid and promote the widespread adoption of solar energy.

The good news is that both ideas can be committed to today. They can be implemented step by step over the next 20 years – not sometime in the distant future. Thanks to progressive thinking and the billions of private and public dollars ready to be deployed, we can create our own future and not be condemned to repeat the mistakes of the past.

For impact investors, there will be new opportunities to put capital to work in solutions that will re-engineer the paradigm that has defined energy production and distribution for more than a century.

To read the entire Research Brief, please click here.

Standing For Racial Justice, Equity, Diversity and Inclusion

Standing For Racial Justice, Equity, Diversity and Inclusion

By Patricia Farrar-Rivas

All of us at Veris stand in solidarity with the family of George Floyd, and the many others who have been a victim of police brutality and injustice.

The moment is upon us to realize, once again, that racial injustice isn’t an isolated event. It’s a systemic problem deeply embedded in all aspects of our society, and it is tearing us all apart.

Despite many concerted efforts to foster change, racism and inequality remain the status quo in most cities in America. When another tragic death takes place at the hands of police, we’re reminded how unequally we are treated based on the color of our skin, sexual orientation, gender, disabilities or religious preferences.

We stand with demonstrators across the country who are speaking out against racism.  And we stand by those who believe we must act now. We cannot wait any longer. Our historical behaviors and policies are no longer acceptable. 

Toward A More Just and Equitable Society

What does this mean for each of us?

It means combating racism and inequality in all forms in our personal lives and in our work. It means calling out injustice, leading by example in our communities, and raising awareness about the issues that need to be discussed openly.

At Veris, this means looking at all of our internal and external practices to identify and disrupt implicit biases. It demands that we work within our industry to maintain the commitment to racial justice, and equality at the forefront.

It also means providing financial support to organizations who can make a difference now. We’ve chosen four: Movement for Black Lives, MVP (Movement Voters Project), Equal Justice Initiative, Color of Change, Minnesota Freedom Fund, and NAACP. There are many others that deserve your support, and we urge you to give to the organizations of your choice.

Now is the time for all of us to unite and create a more just, equal and equitable society.

Veris Fights for Shareholder Engagement

Members of the Veris team, along with Veris supporters Laurie Emrich, Ellen Remmer, Caroline Gabel and Jed Sturman, recently met with the SEC to discuss rule changes that will severely restrict shareholder activism. The meeting was one of the only in-person conversations between the SEC staff and investors. This blog discusses the proposed changes.

Big Changes Afoot

The SEC is proposing a new system that will significantly limit the opportunities for non-institutional clients to exercise their shareholder rights in publicly traded companies, according to an analysis from Veris.  

Collectively, the changes would prohibit many Environmental, Social and Governance (ESG) shareholder proposals from being considered or reconsidered. We believe the new rules may also hinder activist shareholders from accomplishing the dual goals of shareholder engagement and portfolio diversification.

Not surprisingly, many public companies and the Business Roundtable support the winnowing of shareholder proposals, yet most companies wouldn’t be significantly impacted. Large companies predominantly receive the majority of shareholder proposals, but even that is infrequent. On average, public companies are presented with a shareholder proposal once every seven years, according to Veris.

At Veris, we believe shareholder engagement has been very productive and effective. It brings clients into the capital markets to make their voices heard. Often, our data and research motivate companies to implement new policies, even if the resolution fails. When we engage with companies early on, corporate accountability increases. Focusing on ESG-related risk that might otherwise be ignored, we believe, ultimately improves financial performance.

It is our role – working with clients and like-minded investors – to demonstrate leadership and promote change. We will continue to collaborate with US SIF and the SEC to uphold the current rights of shareholders. We will strive to maintain a fair balance between investors and company interests. As is important, we strongly believe the rights of individual investors should not be adversely affected.

Investors Who Oppose The SEC’s Changes

Laurie Emrich, Global Fund For Women

I am a long-time advocate working in social justice philanthropy. One of my SEC-related goals is to expand shareholder access and to increase diversity – to give more people a seat at the table. The SEC’s proposed changes will shut down access from shareholders and stakeholders. Instead, the SEC should advocate for more access and more voices. Interestingly, the Business Roundtable and global leaders in Davos this year supported increased corporate social responsibility and inclusion of a much broader range of stakeholders. Importantly, that includes local community members impacted by corporate actions. Unfortunately, the SEC’s proposed changes would take these ideas in the absolute opposite direction – and as such, are unacceptable.

Ellen Remmer, Senior Partner, The Philanthropic Initiative

As a former Madoff investor who was unwittingly defrauded, I wanted to become a more educated investor. Being involved in shareholder engagement has helped me achieve that objective, and it is incredibly powerful. It helps us understand more about our portfolio and a company’s values and priorities. As someone committed to educating investors about gender and climate risk, I believe active engagement promotes a stronger capital system. The SEC proposal works against that.

Caroline Gabel, CEO, Shared Earth Foundation

I very much want my family’s philanthropy and investments to reflect our values. In leading the Shared Earth Foundation and as a member of Rachel’s Network, I support active shareholder engagement. I’m strongly opposed to loss or threatened loss of our voices as shareholders. I don’t believe shareholders should be disenfranchised at the ballot box. 

Jed Sturman, Owner TD Athletes Edge and Consultant, Partner for Growth

As someone who works in private equity and has an MBA, I am troubled by short-term corporate thinking. I would like to see shareowners create long-term shareholder value. Shareholder engagement assures that companies understand shareowners’ desires and needs – and not just the perspective of board members.


The information contained herein is provided for informational purposes only and reflects the opinions of the author’s which are subject to change without notice.  Comments provided by Veris clients should not be construed as an endorsement of Veris or a statement of their experience with Veris.

The new SECURE Act: What You Should Know

By Tim Kingsbury, Wealth Manager

The SECURE Act, passed on Dec. 20, 2019, contains some major changes governing IRAs and retirement plans, charitable contributions, 529 plans and college student loan debt, among other financial matters. In this blog, we focus on key provisions of the Act to help you plan ahead.

Required Minimum Distributions From Retirement Plans Raised to Age 72

Previously, the age triggering Required Minimum Distributions was 70½. The good news is the SECURE Act allows savings and investments to grow 1½ years longer in a tax-advantaged retirement plan – if you are born after July 1, 1949. If you are born before that date, you must still take your RMD at 70½. For those born after July 1, 1949, the first RMD must be taken by April 1, 2022.

End of the Stretch IRA beginning January 1, 2020

Non-spouse beneficiaries inheriting a pretax retirement account, such as an IRA, are now required to distribute the full balance by the end of the tenth year after receiving the inheritance (in most instances).  Previously, a beneficiary would calculate a new RMD based on their life expectancy. That allowed the IRA to “stretch” for multiple years or even decades.  The stretch IRA was a valuable estate planning tool, particularly for parents seeking to transfer wealth to their children. The change may necessitate revisiting your current estate plan. 

Roth IRAs & Roth Conversions

The Act increases the attractiveness of post-tax Roth IRA. Having both pre-tax assets (IRA) and post-tax assets (Roth) has always been advantageous. However, with passage of the Act, clients who anticipate having lower income years may want to consider converting pre-tax IRA assets to post-tax Roth assets.  While a Roth Conversion is a taxable event, it may be smarter to take that step in low income years, especially if planned out over multiple years.  Low-income years often occur between retirement and age 70, particularly if you delay receiving Social Security. 

IRA Contribution Age Limits Removed

Previously, no additional deductible IRA contributions were allowed once an RMDs started if the person was still receiving W-2 (payroll) income. That restriction is now gone. You can continue contributing to your IRA and grow those account balances. More good news.

Expanded 529 College Savings Plan Usage

$10,000 of a 529 Plan may now be used to pay down student loan debt. That is a lifetime limit per beneficiary, but a potentially very good use of 529 savings.  Additionally, 529 Plan funds may now be used for expenses incurred with Apprenticeship programs certified with the federal Department of Labor.  

Kiddie Tax Rate Reverts Back To Parents’ Tax Rate

Tax rates on unearned income for minors, also known as the kiddie tax, revert back to that of the parents under the SECURE Act.  In 2018 and 2019, trust tax rates were used for kiddie tax calculations when the 37% bracket kicks in at just $12,750 of income. That’s no longer the case. Please note that the new rules are retroactive for 2018 and 2019. Refiling taxes could make sense if a minor has an especially large UTMA/UGMA account. 

No Changes To Qualified Charitable Distributions (QCDs), Medical Expense Deductibility

After reaching age 70½, up to $100,000 may be withdrawn from an IRA account annually and sent directly via check to a charity. That QCD limitation remains the same under the SECURE Act. In years when someone is subject to RMDs, the QCDs can fulfill that requirement and avoid taxes incurred on the IRA withdrawal. Charitably inclined clients should evaluate the tax benefits of sending a QCD to charity versus gifting appreciated securities to charity. 

There was also no change in medical expense itemized deductibility under the Act. Medical expense deductibility still occurs when reaching 7.5% of Adjusted Gross Income for 2019 and 2020, instead of the proposed 10% hurdle. 

The Bottom Line

The SECURE Act creates some of the biggest changes in decades to retirement plans and savings and may directly impact your estate plan. Please reach out to your Wealth Manager to discuss the best course of action for you and your family.


The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents simply reflect the opinions and views of the authors. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without notice.

Veris 2017 Impact Report

2017: Another Breakthrough Year for Impact Investing

Veris is proud to announce the release of our 3rd annual Impact Report, highlighting the collective achievements of its clients, the Veris team, and the investment managers we work with.

Veris 2017 Impact ReportAmong the milestones of the past year: Veris celebrated its 10th anniversary, reached $1 billion in client assets under management, and was named as a B Corporation Best for the World company for the sixth consecutive year.

The 24-page report describes the environmental and social impact resulting from our clients’ collective investments in our five thematic areas: Climate Change & the Environment, Community Wealth Building & Social Equality, Sustainable Agriculture & Food Systems, Gender Lens Investing, and Mindfulness & Sustainability.

The report also focuses on how Veris measures impact, both quantitatively and qualitatively. As part of our ongoing due diligence, we look at the role public companies, shareholder advocacy, private social enterprises, and community development solutions play in creating a more inclusive and sustainable economy.

Making Progress
We’re pleased to note that we have seen great progress each year in terms of understanding and communicating the impact of portfolio companies.

In 2017, impact reporting took a leap forward with the development of systems-level frameworks, such as the U.N. Sustainable Development Goals. To encourage more common language in impact reporting, Veris also reports metrics established by the Global Impact Investing Network’s (GIIN) Impact Reporting and Investment Standards (IRIS). IRIS facilitates comparison and best practices, transparency, and accountability in impact measurement.

What is also interesting about this year’s report is what it says about the positive direction of impact investing. We’re seeing increased momentum across the field – such as major commitments from conventional investors and growth of the Green Bond market and assets invested with a Gender Lens. If you haven’t seen our 2018 analysis of Gender Lens Investing, please feel free to download it here.

We believe these trends validate what Veris clients and our team have recognized for a decade: that investors can align their wealth with their values. The 2017 Veris Impact Report demonstrates our commitment to delivering the most impactful investment opportunities and supporting the overall growth of sustainable and impact investing.

We hope you will read our report, and we look forward to your feedback.

Click here to download the full report.

Investing with a Gender Lens

On March 5th, Veris Wealth Partners and Criterion Institute hosted the webinar Women, Wealth and Impact: Investing with a Gender Lens. Increasingly individuals, families and foundations are exploring how to use their consumer dollars, philanthropy and now their investment portfolios to address gender inequality.  This webinar outlines several easy steps to shift your investments to support and empower women.

The program starts with Joy Anderson, President and Founder of Criterion Institute interviewing Patricia Farrar-Rivas, CEO of Veris Wealth Partners. Together they explore the webinar’s big take-away — moving beyond the ‘why’ and into the ‘how’ of investing to support women. This is followed by a short presentation and Q&A led by Luisamaria Ruiz Carlile and Alison Pyott, both Certified Financial Planners and Wealth Managers at Veris Wealth Partners based on their recently published thought piece Women, Wealth and Impact: Investing with a Gender Lens.  This paper explores the business case for gender lens investing, but more importantly provides tangible steps you can take to increase gender equality with your investment portfolio.

Watch the webinar

Presented by: Criterion Institute & Veris Wealth Partners

Signatory Letters for Impact

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

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

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.

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