Veris Wealth News Archives - Page 3 of 5

August 9, 2019

Markets Strong in Second Quarter 2019

By Jane Swan, Partner and Senior Advisor

Positive returns across investment markets seem to have largely removed the decline and worry from the end of 2018 from our memories. U.S. equity markets added slightly to first quarter growth with large cap stocks up 4.3% in the quarter and 18.5% year-to-date (YTD). Small cap stocks are up 2.1% in the quarter and 17% YTD. International developed markets were up 4.2% in the quarter and 14.5% YTD. Emerging market stocks were up 0.7% for the quarter and 10.8% YTD. Fixed income markets were also positive on speculation of a reduction in Federal Funds rates playing a part in pushing returns higher. The 10-year treasury was up 4.2% for the quarter and 7.4% YTD. Corporates were up 2.6% in the quarter and 5% YTD, and municipal bonds were up 1.7% for the quarter and 3.8% YTD. High yield bonds were up 2.5% in the quarter and 9.9% YTD. They recovered considerably from the end of 2018, when there appeared to be more concern in low credit markets about future economic weakness. Real estate was also positive, with the REIT index up 1.8% in the quarter and 19.3% YTD.

Within domestic equity markets, all sectors but the energy sector continued the positive returns of the first quarter. Even with the negative returns in the quarter for energy, all sectors are positive YTD. The solid rebound from the negative returns at the end of 2018 suggests investors may have a renewed confidence within financial markets. Some of this confidence can be tied to hints of possible accommodation by the Fed. We believe it is somewhat hard to understand this stance. Typically, a rate reduction is a tool reserved to stimulate a suffering or potentially suffering economy.

The argument for a potential rate cut is thought to be a softening job market. Growth in the economy can come from two key sources. If the number of workers grows while the productivity (value of goods produced) of each worker stays steady, the economy is likely to grow. If the number of workers stays steady but productivity per worker grows, the economy is likely to grow. During a recession, layoffs lead to a decrease in the number of workers, which eventually leads to an increase in the productivity of each worker and the economy again will grow. During an expansion, the number of workers often grows more robustly than the increases in productivity. Today’s potentially slowing rate in the number of workers with a modest level of productivity growth, is raising some concern that continued economic growth may become more fragile.

The forecasted cut in the Federal Funds rate aimed at prolonging economic growth is part of what has created the slight inversion to the yield curve. An inverted yield curve means that bonds with longer maturities pay a lower yield than bonds with shorter maturities. In the curve chart to the right, you see that five years ago, bonds of longer maturities paid a higher yield than bonds of shorter maturities. The current yield curve shows yields lower on some longer maturities than those of the shortest maturities. In an economy expected to grow, investors seek to be compensated more to have their funds tied up for a longer period of time. In the past six decades, the yield curve has inverted for three months, seven times. In each case, the economy entered a recession within two years. While this isn’t a statistically significant enough number of observations to draw a confident conclusion, it raises some concern that a prolonged inverted yield curve can be a sign of a soon to be slowing economy.

In this summer of global record heat, we believe there are obvious needs for growth in productivity and workers to combat climate change. New York City has joined eight U.S. states and over 100 cities and counties4 committed to transitioning over the next few decades to 100% renewable energy. This means that each community would produce more energy from renewable sources than it consumed. Getting there will require both workers and increases in productivity, which could play a role in economic growth. Without renewable energy targets from the national government, it continues to be up to cities, counties, states, and business to take the lead in creating this new economy.

As the stock market continues its longest expansion of our lifetimes, we invite our clients to connect with their wealth manager and evaluate their portfolios ability to meet their goals over a variety of market conditions.

1 PMC Envestnet Capital Market Report 7/3/2019
2 U.S. Bureau of Labor Statistics, Private Non-Farm Business Sector: Labor Productivity [MPU4910063], retrieved from FRED, Federal Reserve Bank of St. Louis
3 US Department of the Treasury
4 Sierra Club “100% Commitments in Cities, Counties, & States”

Veris Wealth Partners

March 4, 2019

Collective Consciousness and the Refugee Crisis

By Alison Pyott, Partner and Senior Wealth Manager, and Rebecca Orlowitz

Many of us are struggling with the current global refugee crisis and seeking some small way to make a difference. Ban Ki-Moon wrote an op-ed for The New York Times titled, “The refugee crisis is a test of our collective conscience.” The crisis affects all corners of the world. Refugees face a host of common issues as they seek peace and security, ranging from the trauma of the refugee journey itself, experiencing or witnessing violence, challenging humanitarian conditions in refugee camps, prejudice from host communities, a lack of self-reliance and livelihood, and even problems
arising from resettling or returning home. Should refugees successfully overcome these obstacles, they must still cope with the trauma for generations to come.

At the end of 2017, a record 68.5 million people around the world had been forced from their homes, including 25.4 million refugees, according to the United Nations refugee agency. Only 102,800, less than 1% of the total number of displaced, were admitted for resettlement in 2017. The terms refugee and refugee camp imply a temporary situation. But this is not a new crisis, and for many refugees their situations are far from temporary. Some refugees have lived their entire lives in camps. Palestine refugee camps have existed since 1948, Mae La refugee camp since 1968 and Dadaab Kenya since 1991, to name a few.

What To Do?
The situation is overwhelming and absolutely a test of our collective conscience. As global citizens, we can use our awareness, energy and philanthropy to help. The impact investor has additional options. We can question how public companies are involved in the refugee and immigration crises. Are they or their supply chains involved in forced or child labor, unfair working conditions, human rights violations, or exploitation of undocumented workers? Companies with higher governance scores are often less likely to engage in these practices.

Divesting from private prisons is another option. There are two publicly traded private prison operators, GEO and CoreCivic Inc. According to the Migration Policy Institution, as of August 2016, nearly three-quarters of the average daily US immigration detainee population was held in facilities operated by private prison companies. That’s a sharp contrast from a decade ago when the majority were held in ICE-contracted bed spaces in local jails and state prisons. The industry’s bottom line depends on incarceration for investor profit.

Investing in solutions is another option for the impact investor. Community development finance institutions (CDFIs) work in many US communities. They deliver responsible affordable lending to help low-income, low-wealth, and other disadvantaged people and communities join the economic mainstream. Investing in a CDFI certificates-of-deposit or promissory note may help refugees and immigrants build credit with low limit cards, financial literacy seminars and loans. In 2014, Grantmakers Concerned with Immigrants and Refugees published a guide of CDFIs referencing Dreamer, immigrant and refugee programs.

Other developing options are supporting public companies who make significant contributions to refugee welfare, including hiring, funding, and in-kind services. New and further developing are pay for success bonds and private investments in refugee entrepreneurs directly or through funds.

Despite the scale of the refugee challenge, we need to think of it first and foremost as a crisis of solidarity. Whether the world can come together to effectively support these vulnerable groups will be a true test of our collective conscience.

Veris Wealth Partners

February 22, 2019

How Climate Change Caused PG&E’s Bankruptcy

Veris Guest Blog: By Timothy P. Dunn, CFA

Pacific Gas & Electric (PG&E) Corporation, California’s largest investor-owned utility, which serves roughly 5.2 million households in central and northern California, filed for bankruptcy and is facing an estimated $30 billion of potential liabilities stemming from its equipment’s role in the historic 2017 and 2018 wildfires.

PG&E’s bankruptcy is indicative of how our changing climate presents real economic and financial risks for companies and investors. Prior to the wildfires that burned over 240,000 acres, PG&E included warnings that weather-related disasters could weigh on or disrupt its operations in its regulatory filings. In a statement, the company noted that the state’s most recent climate assessment “found the average area burned statewide would increase 77 percent if greenhouse gas emissions continue to rise,” and that “prolonged drought and higher temperatures will triple the frequency of wildfires.” Further, PG&E performed extensive water risk assessments, water management was integrated into its business strategy, and the company spent hundreds of millions of dollars every year in fire prevention, including pruning or removing thousands of trees. This awareness and action, though necessary and important, was not enough.

In an environment that continues to be challenged by climate change, PG&E’s situation could be a harbinger of the economic toll of spatially-related climate risk. “California is now a riskier place to do business,” said the Environmental Defense Fund’s Michael Colvin, a former adviser to the California Public Utilities Commission. “This is a statewide problem.”

The bankruptcy not only points out the danger that warming poses for many companies, it also underscores how difficult it is for investors to analyze risks linked to climate change compared to conventional business challenges. It is becoming increasingly clear that economic damage from climate change will affect a variety of sectors, and even companies regarded as forward-thinking might not be able to directly prepare for all the externalities associated with this systemic global problem.

Source: Seeking Alpha

Terra Alpha first purchased PG&E in 2015 based on the fact that it was a leading US regulated power provider with solid fundamentals and a strong record of shifting to lower carbon power generation. Nearly 80% of the electricity that PG&E delivered in 2017 was a combination of renewable and GHG free. Accordingly, PG&E was well-positioned to benefit from increased regulatory action in California aimed at furthering the shift toward renewable energy.

We sold our shares of PG&E in mid-October of 2017, after PG&E’s equipment was linked to the start of several wildfires. We had determined that the risk profile for the stock had dramatically worsened and it was no longer prudent to own. We felt that its exposure to such enormous liability, coupled with CEO Geisha Williams’ concerns about the growing financial risk for PG&E from forest fires, intensified by a changing climate, and California’s unique inverse condemnation laws, represented material undiscounted financial risk.

While PG&E may represent the first climate change bankruptcy it likely won’t be the last. Investors need to learn how to account for long-tail climate risk in their portfolios.

Timothy P. Dunn, CFA, is Founder, Managing Member and Chief Investment Officer of Terra Alpha Investments, LLC, a global equities asset manager.

*The information presented by Mr. Dunn is not an endorsement of Terra Alpha Investments by Veris Wealth Partners.

Veris Wealth Partners

February 15, 2019

What Will 2019 Bring For Investors

By Jane Swan, Partner and Senior Wealth Manager

Stock markets finished 2018 with the worst quarter in more than seven years and the first year of negative returns in 10 years. All major global risk asset classes had negative returns. This includes stocks, REITs, and high yield bonds. Fixed income returns were positive, but very low with the multiple rate hikes in the year. Sectors of the S&P 500 were overwhelmingly negative with only small positive returns from Health Care, Utilities and Consumer Discretionary. Despite strong returns in the first half of the year, Energy was again the worst performing sector of both the quarter and the year.

Against this tenuous investment picture, we enter the season of annual investment forecasts. This ritual continues, despite limitations to the accuracy of these forecasts. While market predictions can be relatively reliable during periods of relative stability, their limited reliability in advance of economic inflection points can lead to failure during times when forecasts are actually most important. Investment and economic forecasting rely on a number of data points that are interpreted to develop scenarios of possible futures.

Market analysts and investors review data, assess the speed and severity of changes in trends, evaluate the moving parts in concert, and put them in context of the economic cycle and known and predictable global events. Balancing the many inputs is a mix of art and science, as the collection of inputs and their placement in history is always unique. Current readings of indicators may be similar to points in a previous cycle, but are never an exact repeat of any prior events. We try to assess what has happened in the past when some things were similar, and how the subtle differences may lead to different outcomes.

Recent headlines have included, “Why The S&P 500 Will Fall Another 20% In 2019” from Seeking Alpha, “S&P 500 will climb 15% in 2019 – here’s what to buy now” from MarketWatch, and from Bloomberg, “Save the Date: June 10 Is When Charts Say the Stock Turmoil Will End.” The absurdity of specificity in these forecasts highlights a dilemma for investors. And while we can watch economic indicators for signals of vulnerability, there always exists an additional supply of uncertainties. Shifts in consumer sentiment, changes to the yield curve, and other indicators can give us signals of market strengths or weaknesses. Natural disasters and human interventions are less predictable, but can have a significant impact.

In our current situation, we have troves of data to evaluate numerous trends, while finding bigger questions seemingly impossible to answer. We have low unemployment, signaling a strong workforce. If the market downturn of the fourth quarter quickly recovers, we will still be in the longest market expansion in history. The yield curve is nearly flat, suggesting concern about future growth. Corporate earnings are expected to grow, but at a slower rate than last year. And yet all this data still paints an opaque picture of future markets.

Crosscurrents In the Markets
Weighing on the market is a growing list of uncertainties that constrain the ability of businesses to plan. Uncertainty around Brexit makes it difficult for businesses in Europe to plan for growth, evaluate the positioning of their workforce, and determine where their HQ should be located. It is the time of year when U.S. farmers are planning their 2019 crops, but they don’t know if tariffs will continue to reduce their markets. Further the government shutdown has limited data they use to finalize crop planting plans. The effects of tariffs and the partial government shutdown continue to trickle into ancillary businesses the longer they continue, airlines for instance. The resolutions of Brexit, tariffs with China, the government shutdown, and the eventual conclusion of the Mueller investigation may cause bursts of market volatility. However, greater certainty, and resolution, around these matters may lead to a market boost as businesses simply can plan better.

The current accumulation of uncertainties is unusual. In Barron’s annual Roundtable of Experts, most expect the pressures of these uncertainties to resolve in the first half of the year but believe they will constrain economic growth as we await the resolution. These experts expect GDP growth somewhere between 0.5 and 2.4 percent in the first half of the year and a return to growth higher than 3 percent in the second half of the year after these uncertainties are presumably sorted. We can at least partially attribute the market decline from last quarter of 2018 to these escalating dilemmas. So long as they mostly resolve in the first quarter and no major new matters are added, we very well could return to a strong position in the economy and the stock market. That said, a year ago, these current market stressors of a possible hard Brexit or re-vote on the referendum, a trade war, and government shutdown lasting over a month, were at best distant on the horizon. Markets were celebrating the success of tax reform that hoped to raise stocks while increasing wages and consumer spending. All with little concern over increases to deficits.

The Big Picture
As we look to the year ahead, we work to keep all of this in perspective. In addition, as impact investors we consider long term implications of all opportunities. We take note that while the federal government opens and shuts down, on many levels, cities and states march forward in combating climate change. They are innovating in green and sustainable cities and housing and technologies. We are seeing solutions-based leadership. There are nearly 50 new models of electric vehicles and batteries coming on the market. Total oil used for cars and trucks hit peak and is actually dropping in the U.S. Some states are making bold experiments in new ways to deliver community healthcare. And more of us are awakening to the crisis of inequality in our democracy. Spotlighted by 1 million federal workers on shutdown struggling to pay basic bills, while eight billionaires are highlighted this week having equal wealth to 50% of the people of our world.

Considering these matters, Veris’ determined focus on climate change factors, gender lens characteristics, community wealth building and social equality, sustainable agriculture and forestry, as well as mindfulness gives us practice at looking beyond the old-fashioned forecasts. Our broader approach positions us to work with our clients to better understand risks and opportunities beyond those reflected in the standard list of economic indicators.

1 Seeking Alpha, January 7, 2019 “Why The S&P 500 Will Fall Another 20% in 2019” by https://seekingalpha.com/article/4231851-s-and-p-500-will-fall-another-20-percent-2019
2 MarketWatch, January 7, 2019, “Opinion: S&P 500 will climb 15% in 2019 – here’s what to buy now” by Michael Brush https://www.marketwatch.com/story/sp-500-will-climb-15-in-2019-heres-what-to-buy-now-2019-01-07
3 Bloomberg Markets, January 23, 2019 “Save the Date: June 10 Is When Charts Say the Stock Turmoil Will End” by Elena Popina https://www.bloomberg.com/news/articles/2019-01-23/save-the-date-june-10-is-when-charts-say-stock-turmoil-will-end

Veris Wealth Partners

January 7, 2019

Public Companies Are Driving Sustainability

By Anders Ferguson, Partner

Public companies committed to sustainable innovation are playing a growing role in transforming the global economy.

In the past year, we’ve seen this commitment translated into new thinking that is addressing climate change and the environment, while placing more emphasis on positively impacting the communities in which companies operate. Equally important, sustainability can lead to growing inclusion of wealth creation for investors, workers and partners.

The business case for sustainable business practices gets even stronger with each passing year.

A worldwide body of research indicates that operationalizing sustainability often makes companies more efficient in their supply chains and systems. The process typically involves the implementation of new technology and process improvements that enable companies to do more with less negative impact on the world.

As companies evolve, they frequently transform how they approach opportunities, solve problems and ultimately create value. In the words of sustainability leader William McDonough, these companies begin thinking in terms of “good design.”

That, in turn, stimulates creativity that can reduce the negative byproducts of their operations, such as pollution or environmental degradation. The interconnectedness of products, the environment, workers, stakeholders, customers, and financial success have a cumulative positive effect for individual companies and society as a whole.

A study by MIT Sloan Management Review and the Boston Consulting Group (BCG) found that the most successful sustainable companies articulate the positive impact sustainability has on their business.

The key message in this research: Sustainable business practices can uncover new revenue streams, reduce risk, power innovation and lead to better business models.

In another study, MIT and BCG found that when a manager’s compensation is aligned with sustainability – as it is at Unilever – the process multiplies. The study’s authors found that these companies typically look beyond product and focus on the economic, social, and political impacts of their brands and business.

The benefits of sustainability on a company’s brand are also significant. Brands today create at least 30% of total corporate market value. Brands communicate a company’s mission and story. When sustainability is an integral part of a company’s brand, significant new opportunities to connect with their customers and build “brand loyalty” can emerge.

At the same time, when executive-level officers, managers and employees buy-in to sustainability, new cultures and values can motivate and inform employee behavior and inspire innovation. This has a positive, self-reinforcing effect on all of a firm’s stakeholders. Consumers experience this via products that inspire and motivate our shopping habits: from electric cars to organic baby food to clean water.

We are seeing companies putting new focus on their labor practices and product design. Recently, Deloitte found that a company’s values are a key differentiator in recruiting and retaining employees, particularly in today’s full-employment economy.

This is especially true of younger professionals, who want to work for companies solving the world’s problems, not perpetuating them. Separately, McKinsey & Company found that many companies pursue sustainability because it is part of their corporate values and improves the health of their businesses over time. These companies often create executive-level sustainability positions with budgets to effectively implement these programs. Boards of Directors can play a critical role empowering the process.

Increasingly, investors view public companies committed to sustainability as potentially strong performers, while acknowledging the possibility of lowering risks. That’s because sustainability often includes technology investment and process improvements that strengthen their competitiveness. As a result, more capital is going to sustainable companies.

Companies in Veris’ portfolios are at different stages of integrating sustainable business practices. By taking a deeper look at these companies, we can see the important role that innovative public companies play in creating meaningful impact in the world. You can read more about these companies in our 3rd Annual Veris Impact Report.

Veris Wealth Partners

October 30, 2018

Gender Lens Investing: 2018 Is A Watershed Moment

By Patricia Farrar-Rivas, Alison Pyott, Luisamaria Ruiz Carlile

Linda Pei had a vision. In 1993, she launched the Women’s Equity Mutual Fund, the first U.S. fund investing in companies with positive track records ofhiring, promoting and generously compensating women.

Her fund marked the birth of “gender lens investing” (GLI), which is founded on the premise that investing intentionally for gender balance and equity can generate both financial and social returns.

For decades, however, there wasn’t much progress. Over the next 20 years, only four new strategies emerged explicitly incorporating gender into their financial analysis of publicly traded securities.

GLI Blossoms
Fast forward to 2018. Over the past 12 months, we’ve seen more growth in GLI in a single year than we have in the past two decades.

As of June 30^th, 2018, investors had poured $2.4 billion into 35 GLI vehicles holding publicly traded securities, according to the 2017 Gender Lens Investing report from Veris.

This is a 23-fold increase from $100 million just four years ago.

These investment vehicles range from U.S. and Canadian ETFs, to French and Nigerian mutual funds, to Australian ‘gender equality bonds.’

Click here to download Gender Lens Investing: Bending the Arc of Finance for Women and Girls.

Fully Diversified GLI Portfolios
As the number of GLI vehicles has increased, investors have begun making the leap from investing in single products to constructing entire, fully diversified GLI portfolios with clear missions.

Our 2018 report highlights three of these portfolios, each tackling distinct social issues: gender-based violence, women’s chronic under-representation in leadership, and the need for innovation in women’s health care.

This week, Alison Pyott and Luisamaria Ruiz Carlile of Veris will be sharing this research at theGender-Smart Investing Summit, taking place in London on November 1-2. The goal of the summit, expected to attract 300 champions of GLI, is “moving gender-smart capital with vision and velocity.”

Linda Pei would be proud that her vision endured.

Even greater would be her delight at the accelerating flow of capital into public market GLI products: the first $1 billion took 25 years. The second $1 billion took 12 months. How long to $100 billion? The first $1 trillion?

Veris Wealth Partners

October 1, 2018

What You Can Do To Address Climate Change

By Helene Marsh, Veris Client

Climate change can be an overwhelming topic for any individual or community. So how can anyone make a meaningful difference?

That’s the question my friend, Sarah Loughran, and I had been asking ourselves for several years. Today, supported by a concerted community effort, we’ve succeeded in helping eight Marin County municipalities reduce greenhouse emissions by purchasing 100% renewable energy for their government facilities.

At the same time, we’ve helped raise awareness about how individuals can support the renewable energy market in their community by purchasing energy from renewable providers for just a few dollars more a month.

As an impact investing client of Veris, I wanted to share my experience to hopefully inspire others to think boldly and creatively in addressing climate change.

Creating Impact
Sarah and I met while serving on the Marin County Civil Grand Jury in 2013. Fast forward four years, and we were together again taking the signature Master Class of Environmental Forum of Marin, a local leader in training environmental advocates for the last 45 years.

We soon learned that the passage of climate change legislation in California requires communities to meet specific greenhouse gas emission reductions over the next 30 years. That law requires each community to produce a climate action plan that details how these goals will be achieved.

When we looked at how Marin County municipalities were meeting the intent of the law, we were surprised by what we found: Each of the climate action plans, for the 12 Marin municipalities, included residents and municipalities purchasing 100% renewable electricity as options for reducing greenhouse gases. Only 4 municipalities made the switch to clean energy for their own operations.

With the support of 19 environmental groups and members of the community, Sarah and I launched a campaign to change this in 2017.

Working together, we convinced eight of the 12 Marin jurisdictions – Corte Madera, Larkspur, Novato, San Rafael, Ross, Mill Valley, Tiburon and the County of Marin – to make the switch to using 100% renewable electricity for government buildings, facilities and streetlights.

The four other Marin jurisdictions – Fairfax, Belvedere, San Anselmo and Sausalito – had already made the switch prior to the start of our campaign.

The upshot: Marin County leads the way in California and across the country in purchasing 100% renewable power for its municipal accounts.

The whole process took only ten months!

We met with every town or city manager and many council members to understand the challenges they faced. We wrote reports and talking points to make the case for 100% renewable energy. We gathered supporters in each jurisdiction to attend public hearings. We kept jurisdictions informed of progress across the country and sent follow-up correspondence. In total, we attended 17 council meetings.

The positive results speak volumes about the effectiveness of citizen power and democracy.

How You Can Buy 100% Renewable Energy
So how did Marin County source the renewable energy?

Through the local “Community Choice Aggregation,” MCE. The non-profit company is one of many Bay Area companies providing clean energy that can be purchased by households, businesses and government agencies. (See below for a list.)

While it’s true that 100% renewable energy is more expensive than non-renewable energy, the difference is minimal. On a $200 power bill, 100% renewable electricity is less than $10 a month more.

Many of the Community Choice Aggregation companies listed below provide comparisons of buying renewable vs. traditional power sources.

MCE: Marin, Napa, Solano and Contra Costa Counties. The 100% renewable option is called Deep Green.

Clean Power SF: San Francisco. The 100% renewable option is called Super Green. Peninsula Clean Energy: San Mateo County. The 100% renewable option is called Eco100.

Sonoma Clean Power: Sonoma and Mendocino Counties. The 100% renewable option is called Evergreen.

Silicon Valley Clean Energy: Santa Clara County. The 100% renewable option is called Green Prime.

East Bay Community Energy: Alameda County. The 100% renewable option is called Renewable 100.

Sarah and I are continuing to advocate for the purchase of clean energy to reduce our carbon footprint. Our work and experience demonstrate what can be done by those committed to having impact in their communities.

* * *

About Helene Marsh
Helene Marsh is a clean-energy advocate who lives in Tiburon, California. In addition to co-leading the effort to transition Marin County municipalities to 100% clean energy in government buildings, Helene built one of the first LEED certified homes in the country and sells power to the grid from solar panels on her house. She is also an MCE Deep Green customer and drives an all-electric vehicle to further reduce her carbon footprint. Helene earned a Bachelor’s degree in Engineering and Visual Arts from Harvard University and a Master’s degree in Environmental Science & Management from University of California, Santa Barbara.

Veris Wealth Partners

August 6, 2018

Opportunity Zones

By Lori Choi, Partner

“Opportunity Zones” are a hot topic in impact investing these days, but what are they and why might they be important for investors?

Embedded in the new Tax Cuts and Jobs Act signed into law, December 2017, are provisions around “Opportunity Zones.” They ask governors of all states and territories to designate up to a quarter of low-income census tracts as investible zones. The aim is to attract investment to these distressed communities by allowing investors to defer, reduce, or potentially eliminate capital gains taxes over time.

Why is this program important? According to Rockefeller Foundation President, Rajiv Shah, Opportunity Zones represent “the single biggest tax incentive to invest in low-income communities across America that we’ve seen in 100 years.”¹ While impact investing champions are cautiously optimistic about the amount of dollars that could flow to low income communities, this new policy is also exciting in its potential to draw more mainstream investors into impact investing. According to the U.S. Impact Investing Alliance “there are currently trillions of dollars’ worth of unrealized gains in the capital markets. If even a portion of those gains are moved to invest in distressed communities, it could have a transformative impact.”²

Investors must invest in Qualified Opportunity Zone Funds within 180 days of selling an appreciated asset to receive the tax benefits, although the number of investment funds being created is still limited. Several of Veris’ impact investing partners are looking into forming Opportunity Zone Funds. We look forward to keeping you updated about how these may or may not be appropriate for your situation and goals.

Investors in Qualified Opportunity Funds will get to benefit in three ways:
• Taxes due on capital gains deferred until December 31, 2026, at the latest.
• Capital gains will be reduced by 10% for investments held 5+ years and 15% for 7+ years.
• Capital gains will be permanently eliminated for investments held 10+ years.

Impact investing champions like the Kresge Foundation³ have come forward to support the creation of Opportunity Zone Funds.

¹ https://impactalpha.com/getting-ready-for-the-opportunity-and-peril-in-opportunity-zones/
²
³

Veris Wealth Partners

July 30, 2018

Equity Markets Regain Footing in Q2 2018

By Jane Swan, CFA, Partner

After a rough start to 2018 in US financial markets, domestic equities are largely back on track. The charts below show the return for each asset class and highlight the strong return of US markets in the quarter. The losses of the first quarter were reversed. This wasn’t the case in international markets, which were very negative. Fixed income markets reacted to yet another interest rate hike and produced flat returns.

The strongest returns for the quarter came from Energy stocks. The sector returns graph reflects that the greatest growth came largely from more cyclical sectors. These are sectors that tend to respond well when consumers are optimistic.

With the S&P up 2.6 percent year-to-date, it might be hard to remember February, when the year-to-date return was negative 10 percent. While we have not yet fully returned to January’s market high, the February correction has not derailed the now six-and-a-half year market expansion.

Looking at what changed over the second quarter, markets appear to be adjusting to a new normal. The market overreacts to fear or enthusiasm over political announcements. With so many pronouncements and almost immediate government revisions, plus often contradictory analysis from pundits, it’s difficult for the market and investors to make sense of the news. A case in point is the long-term impacts of tariffs and retaliatory tariffs in the second quarter. While the long-term impacts are speculative at best, the actual implementation of US tariffs on imported goods were about two-thirds the size of the original announcement.

Also interesting is the broader reaction of the bond market to ongoing interest rate hikes. Thus far, the longer end of the yield curve hasn’t responded to the Federal Reserve’s recent rate increases.

The chart shows the current yield curve (6/30/2018), the yield curve from one year ago (6/30/2017) and a more typical looking yield curve from 25 years ago (6/30/1993). You can see that in the last year, while yields on the near end of the curve have moved up almost a full percentage, the farther end of the curve has hardly moved at all. Thirty-year bond yields are up just 0.14 percentage points from a year ago.This flattening of the yield curve is typically an ominous sign for markets. It shows that bond purchasers are anticipating either the possibility of inflation or an economicdecline.

At Veris, we constantly monitor the news, but keep focused on fundamentals and actual data. Corporate earnings are expected to grow about 20 percent over the next 12 months, significantly higher than the 20-year average of 6.2%. Reported unemployment remains very low, as does wage growth. With core inflation remaining at low levels, consensus expectations are that the Federal Reserve will raise interest rates two more times this year.

There are several other key indicators we continue to monitor closely. We are watching whether earnings reports come in at or near expected levels or whether they will be significantly revised. We also are watching the yield curve for continued flattening or a reversion to a more normal, sloped curve. The near and longer-term economic impact of global trade and tariff policies and fluctuations in oil prices also have the possibility of derailing the long financial expansion.

Veris Wealth Partners

July 16, 2018

What’s Next In Community Wealth Building and Social Equality

By Luke Seidl

The past 12 months have been a big opportunity for investors interested in Community Wealth Building and Social Equality.

Judging by the growing number of product offerings, there will be many new ones in the next 12 months.

In this blog, we highlight a few of the opportunities. To see our full analysis, please click here.

Focus on Income Inequality
Almost 19 million renters and homeowners are “severely cost-burdened,” meaning they pay more than half their income toward housing. Growing evidence points to housing as a main driver of wealth disparity in America.

In response, Community Development Finance Institutions (CDFIs), Credit Unions and banks, private equity and real estate fund managers are raising capital to increase the supply of affordable housing.

Inclusive economic growth should be aided by a new program in the Tax Cuts and Jobs Act of 2017 that incentivizes long-term investments in distressed communities designated as “Opportunity Zones.” The Act will enable investors in qualifying funds to defer, and in some cases, reduce taxes on realized capital gains.

Human Rights and Justice
Sustainable investors continue to intensify pressure through shareholder activism to eliminate conflict minerals, human trafficking, child and slave labor in supply chains, and to protect indigenous rights.

In the wake of the Parkland, Florida shooting, more investors are divesting not only from gun manufacturers and retailers, but also the banks financing them. Meanwhile, the newly mobilized Investors for Opioid Accountability (IOA) coalition is working to address companies’ role in America’s latest public health crisis.

Assets invested with a Gender Lens, which are focused on companies empowering women and girls, reached $2.2 billion deployed through 70 public and private equity and debt fund vehicles. Several funds have raised money to focus on broad-based employee ownership or quality job creation in sectors and communities impacted by automation.

The possibilities are growing for impact investors to complement the work of governments and NGOs in creating a more equitable, prosperous and sustainable planet. The arc of history can bend toward justice, but not without the collective intent to make sure it does.

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Veris Wealth Partners