Three ways to incorporate impact investing in an institutional portfolio: RBC Global Asset Management White Paper

MINNEAPOLIS, MN, June 30, 2014 /CNW/ - The impact investing market is set to grow by 19 per cent this year¹ as organizations and investors look for opportunities that not only provide attractive financial returns but also offer a social and environmental impact. While the asset class is gaining popularity, many institutional investors are uncertain of how to add an impact investing element into their portfolio while preserving yield.

In Align Your Portfolio with Your Values, a new white paper by RBC Global Asset Management (RBC GAM) in the U.S., Senior Portfolio Manager Scott Kirby explores several straightforward impact investing approaches institutional investors can implement in their U.S. fixed income portfolios, while adding lower levels of volatility and more stable cash flow characteristics. Kirby, who serves as co-portfolio manager for RBC GAM's impact investing strategy, explains that choosing from the host of potential impact outcomes and available investment instruments can be an obstacle to some investors, particularly those who are new to the impact arena.

"Impact investing has generated increased attention from a range of institutional investors, but not knowing where to start can be a barrier to entering the space. Our intent with this paper is to remove that barrier," said Kirby. "Align Your Portfolio with Your Values was written to help those interested in impact investing find their way to the starting line and give them an idea of what lies ahead once they get there."

"Adding an impact dimension to a standard U.S. fixed income allocation offers investors new to the impact arena a seamless means to gain exposure," added Ron Homer, co-founder of RBC GAM's Access Capital Community Investment strategy and Managing Director of RBC GAM in the U.S.

The paper offers three portfolio changes for institutional investors seeking to implement a more impact-oriented approach:

1. Replace generic agency mortgage-backed-securities (MBS) with impact agency MBS - Agency MBS are pools of single-family mortgages that meet the strict underwriting guidelines of government-sponsored entities. Impact agency MBS may align with investors looking to provide capital to low- and moderate-income families, offer access to affordable housing and support homeownership in select geographic areas. Compared to other sectors in the Barclays U.S. Aggregate Bond Index, impact agency MBS tend to have lower loan balances which leads to a more stable cash flow profile.
   
   
2. Replace Treasuries and agencies with impact agency commercial mortgage-backed securities (CMBS) - Impact agency CMBS can support affordable rental housing for lower- and middle-income families, availability of health care facilities in underserved areas and supportive care for the disabled and elderly. Impact agency CMBS provide a high quality investment with high levels of call protection and superior credit characteristics.
   
   
3. Replace investment-grade corporate bonds with impact taxable municipals - To incorporate more of an impact mandate, investors can select taxable municipal bonds that support affordable housing, access to higher education, public schools and eldercare. Two common types of impact bonds available are mortgage revenue bonds and multifamily housing bonds, which are sold by Housing Finance Agencies, and typically feature low default rates and government guarantees.

Kirby says that each of these impact security types feature high credit quality and liquidity, lengthy track records and scale for a variety of portfolio sizes.

"The portfolio can be structured to support several impacts including affordable homeownership and rental housing, supportive housing for the elderly and disabled, healthcare facilities in underserved areas, educational programs and community development activities," noted Kirby.

RBC GAM's impact investing solution, the Access Capital Community Investment Strategy, is a disciplined fixed income strategy supporting underserved communities targeted by its investors. The strategy has a 15-year track record with over $800 million in assets under management as of March 31, 2014.

"With the Access Capital Community Investment Strategy, we work with clients to design a portfolio that meets their specific impact and financial return objectives with investments that can be targeted demographically or geographically," said Homer.  "Clients can earn a competitive financial return while putting money to work in ways that support their communities and values. We call this the double-bottom-line benefit."

To read Align Your Portfolio with Your Values, click on the following link: http://us.rbcgam.com/resources/docs/pdf/whitepapers/RBC_Impact_Investing_6.14.pdf

About RBC Global Asset Management and RBC Wealth Management

RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC), and includes institutional money managers BlueBay Asset Management and Phillips, Hager & North Investment Management. RBC GAM is a provider of global investment management services and solutions to individual, high-net-worth and institutional investors through mutual funds, exchange-traded funds, hedge funds, pooled funds, separate accounts and specialty investment strategies.

RBC GAM group of companies manage more than $300 billion (U.S.) in assets and have approximately 1,200 employees located across Canada, the United States, Europe and Asia.

In the United States, RBC Wealth Management operates as a division of RBC Capital Markets, LLC. Founded in 1909, RBC Capital Markets, LLC, is a member of the New York Stock Exchange, the Financial Industry Regulatory Authority, the Securities Investor Protection Corporation, and other major securities exchanges. RBC Wealth Management has more than $260 billion of assets under administration and nearly 2,000 financial advisors operating in 190 locations in 42 states.

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¹ Spotlight on the Market: The Impact Investor Survey, J.P. Morgan, Global Impact Investing Network, May 2, 2014

SOURCE: RBC Global Asset Management (U.S.)

Matt Gierasimczuk, 416 974-2124, [email protected]