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Investing for Income, Ethically and Responsibly

Since WW2, most of the focus on generating income for living expenses or retirement income has been to invest in large companies such Exxon Mobil, GE, and, ugh, Phillip Morris. Yes, these companies do pay nice dividends, but they are companies that often wrecks havoc on public health, public safety, and the environment.

Moreover, these behemoths are generally shameless tax dodgers with massive overseas sheltering strategies, weapeonized with armies of accountants, lawyers and lobbyist that rig the game in their favor. , For investors with a social ethic, this type of old school income investing is both unnecessary and increasingly bad for the US, the global economy, our planet - and the people who inhabit it.

Now under the Trump kleptocracy, our dysfunctional US political system is a white elitism version of capitalism moving more and more to a tri-oligarchy form of corporate absolutism, i.e. three companies will eventually control most of the product, service and distribution business in each US economic sector.

In a corrputed US kleptocracy, it is up to consumers and investors to re-direct the path of American free enterprise. 

Anyone who wants to look at reality knows that the two party political system we currently have in the US is now run by bought and sold Wall Street liberals or Wall Street right wingers who are obsessed with "show me the money." Either way, they work for the mega-moneyed special interests when all is said and done.

Isn't it time for investors to divest a large part of their income portfolios from bad behavior large companies and their "legal" lobby money corruption? 

In fact, there are hundreds of publicly-traded sustainably minded mid-cap and small cap companies that pay secure annual dividends of 3% or higher. A company like American Campus Communities (symbol ACC), an Austin, TX real estate investment trust that owns and operates college dorms at big universities around the country, is a great secure income paying stock to own as part of one's dividend paying equity or retirement income portfolio.

More specifically, many readers of SoberMoney may want to focus their income investing more on the environmental, social and good corporate governance (ESG) arena of money management, which the rest of this article addressses.  

What is special about so-called ethically responsible fixed-income investing?

Increasingly, there are fixed-income investments that can provide financing for a variety of projects and companies that meet environmental, social and corporate governance (ESG) criteria. Through investments in both publicly traded fixed-income securities and self0-directed IRAs, investors can now support projects such as renewable energy, natural resources, community and economic development or affordable housing.

For example, an investor could buy a publicly-traded municipal bond that funds a hydroelectric project, or a bond from the Department of Housing and Urban Development that funds inner-city development. Or, an investor can by-pass Wall Street all together and set up a self-directed IRA and invest money in a local project that meets profitable community-focused ESG investment criteria. 

How does an investor identify ESG fixed-income investments?

ESG fixed-income strategies focus on maintaining a double bottom line - providing competitive fixed-income investment returns while offering investors the opportunity to align their portfolios with their ESG values.

The first step of the investment process involves evaluating the macroeconomic environment and its impact on fixed-income market fundamentals. An investor can develop an overall strategy from this analysis and identify opportunities in the eligible investment universe, established by ESG guidelines, to construct the portfolio.

ESG criteria can be established at the portfolio level for all fixed-income strategies. The overriding goal with these guidelines is to strike the appropriate balance between the ESG expectations of investors and the investment opportunities needed to maintain good performance. Although the ESG criteria vary between security types, the general approach is to choose those investments that are “best in class” in these criteria.

For example, for corporate bonds, one can favor public companies that are strong stewards of the environment, devoted to serving local communities and society generally, committed to high labor standards for their own employees, and those in their supply chains, dedicated to producing high-quality and safe products, and committed to managing their companies in an exemplary and ethical manner.

What is SoberMoney's experience with ESG fixed-income investing?

SoberMoney has been addressing Environmental, Social and Governance (ESG) responsible fixed-income investing for years. During this time, we are continually investigating new products, new ideas and new thinking around applying ESG criteria to fixed-income markets.

What is the buzz phrase "proactive social investing" (PSI)?

For those of us who get amused by politically correct corporate speak, "proactive" in this case mean "actively managed investing".

Hence, PSI investments are publicly traded fixed-income securities that provide competitive risk-adjusted return potential alongside clear social and environmental benefits and outcomes. PSI investments generally revolve around four themes: 1) affordable housing, 2) community and economic development, 3) renewable energy development and revenues, and 4) addressing climate change through a more sane use of natural resources and energy alternatives. It is realitistic to target a 4% to 6% total return (dividends combined with asset growth) for PSI within ESG fixed-income portfolios, with all investments subject to the same relative value framework.

Proactive social investing can be major or minor part of ESG fixed income strategies. From a performance perspective, it is important to identify PSI opportunities that are not included in the standard income benchmarks (such as locally-owned enterprises funded by self-directed IRAs). An independent analysis is necessary to evaluate how these investments aligns with core investment strengths of relative value through fundamental credit analysis and issuer values. 

What is a specific example of a PSI investment?

For instance, an investor can invest directly or indirectly in an office building located in most major cities or in a local community, which is a LEED certified (Leadership in Energy and Environmental Design). In order to secure the LEED platinum designation, the building was deemed to have been constructed in a very environmentally friendly and sustainable manner. Or, one can invest in publicly-traded real estate investment trusts (REITs) that invest in income producing solar and wind projects.

Note: The right wing naysayers who still try to diss the Obama-funded renewable energy investments selectively point out the 10%-20% that failed - and ignore the 80%-90% that have succeeded (Tesla, for one). More to the point, it was China's massive oversupply of solar panels that caused the price collapse of global solar technology. Those days are behind us now. Solar is now generating about 50% of the new energy coming to market in US communities and cities.   

In the publicly-traded PSI approach, it needs to be global in nature, as many of the best projects are in Europe, where energy independence from Russia and their geopolitical framework demands it. And in early 2012 we started to see a broad offering of “green bonds” sponsored by the International Finance Corporation, a member of the World Bank Group. These bonds provide capital for renewable energy and other projects that serve to mitigate the impact of climate change in developing nations.

Will investors will see more fixed-income ESG investments?

Yes. Given investor demand, we expect to see many more strategies in the market. According to the Forum for Sustainable and Responsible Investment, 84% of large money managers predict that the demand for ESG options will increase or remain steady over the next five years. The expansion of ESG investments across asset classes will provide new ways for investors to invest in a broadly diversified portfolio that is consistent with their values, offering access to a pool of fixed-income securities such as agency debt, asset-backed securities, commercial mortgage-backed securities, corporate bonds, mortgage-backed securities and municipal bonds.

Are there any market trends that could have an impact on the space?

There are a number of developments under way that may help drive supply and demand for ESG fixed income. The U.S. market has generally been slower to incorporate ESG criteria than places like Europe, which, for example, already has established a competitive market for trading carbon emissions. But gradually sentiment is shifting in the U.S., and that is being reflected in new legislation and regulations.

For example, in August 2013 the federal government finalized new fuel-efficiency standards for U.S. cars and light trucks, and many smart states (California) have begun to enact renewable energy requirements in their jurisdictions. These trends favoring higher environmental standards definitely point to support for ESG investing.

What are the most exciting fixed income investment developments today?

Momentum is building for ESG fixed income as more and more people want their money managed in an ethical manner. And as that demand accelerates, more issuers of fixed-income securities across more sectors are stepping up. Increasingly, ESG bond and REIT issuers are coming to market. As collective investors, our size and future experience will give us a track record that allows us to play a market leadership role and help shape the market going forward.

Investor Activism is About Wall Street Disobedience

Investing our retirement and after-tax earnings in publicly traded companies, i.e. Wall Street and the other global stock markets, is only one way to invest for growth and income. Unfortunately, most Americans are so tied to thinking that they must compromise their social and ethical values by participating in the elitist equity markets known as Wall Street, they should know it is simple not true.

First of all, Wall Street no longer functions as a level playing field for small investors. It is a mostly rigged game favoring hedge funds and institutional investors who have early insider information via expensive subscription services, head start high frequency computer trading technology, and a network of crony bankers, brokers, and business media conglomerates such as CNBC, Fox Business and Bloomberg.

The plutocratic investment mantra of the new Wall Street is largely based on a free markets eltitism that obsesses on profit, regardless of the social or environmental repercussions. It is as if they know the world is headed towards disaster and they hope they can accumulate as much money as possible to eventually hire elite class security and buy technology that will protect them from the masses when the economic apocalypse hits the fan (whatever shape that will take).

Historically, Wall Street was a place where entrepeneurs, inventors and risk takers could raise capital - by issuing stock - to grow and expand their business. 

Today, almost all "initial public offerings" or stock IPOs are created simply to pay back the venture capitalists who have already made all the real money before the company went public. Today, the price of most stock IPOs go down after the stock is first issued, because the real lower value of the stock needs time to emerge, often when the six to twelve month post-IPO selling wait period for insiders expires.




A Progressive Vision of Investor Activism

SoberMoney is about "Investor Activism"

In the world of investing, "investor activism" has traditionally meant infiltrating a company's Board of Directors to force the unleashing of more profits - generally just to make the stock price go up. More often than not, such "investor activism" actions are usually bad for the customers and consumers of the companies.

Even more draconian, the new investor activism as defined by Wall Street now means companies are being stalked and bullied by "shareholder value" vigilantes - amoral profit-only organizations such as hedge funds, and people like Carl Icahn, MItt Romney, and others.

At SoberMoney, we are redefining "investor activism" to mean intelligent strategies small investors and consumers with investment capital can implement that will force companies to focus on these positive societal economic values:

1) product quality and safety,

2) healthy and productive work environments that treat employees with respect and rewards them with good pay and benefits,

3) being good environmental stewards, and

4) spending as much money on customer service systems as they do on sales and marketing.

5) Egalitarian workplace values that treat women, minorities, and the LBGT community as human beings with the same rights as majority citizens.

Ironically, liberals often ignore implementing progressive investor activism strategies into their life because they falsely believe doing so might cut into their stock market profits or retirement income dividends. Fortunately, with just a little research and education, such fear based money sentiment is not true.

Going forward, will outline profitable progressive investor activism strategies that focus on risk-management and growing one's finances.




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