Related Content
![{{ article.title | removeHtmlTags }}]()
{{ article.publishDate | date: 'MMMM d, yyyy' }}
As U.S. investors return from a three-day holiday weekend,
gains in European equities suggest that market risk has shifted
to a narrative of bad news is good news, as deteriorating
economic data sparks hopes of action by the
European Central Bank. Final August Markit manufacturing
purchasing managers’ index (PMI) data released yesterday
registered a sequential contraction to 50.7 from 51.8 in July,
lower than the flash 50.8 initially released. Individual
measures for Germany, Italy and Spain were also weaker than
their respective flash releases. France saw an improvement,
albeit still deep in negative territory at 46.9. Across the
channel UK manufacturing managers also indicated a slowing pace
of activity as final index data registered lower than
forecasts. With ECB president Mario Draghi scheduled to make
the bank’s monthly rate announcement on Thursday, stock
and currency traders are clearly signaling expectation for a
fresh dose of stimulus to combat low inflation and sluggish
activity. The growing crisis in eastern Ukraine, where
hostilities escalated over the weekend, casts a shadow over the
bank’s policymakers as they position themselves. With
historically accommodative policy already in place and the
prospect of a Russian natural gas squeeze as winter begins,
memories of the 1973 OPEC embargo and ensuing inflationary
spike provides an outlier concern.
Detroit readies for day of reckoning. A
federal bankruptcy court session to determine approval for
Detroit’s proposed debt restructure is set to start
today. The $18 billion filing will be closely watched for
indications of how future municipal shortfalls will be managed
as pension obligations continue to weigh on U.S.
municipalities.
Bidding war for Family Dollar ratchets up.
After Charlotte–headquartered discount retail chain Family
Dollar rejected an earlier bid in favor of one from Dollar
Tree, Dollar General raised its bid to take over its smaller
rival. The increase, to $80 per share, represents an additional
2 percent increase to a total in excess of $9 billion for the
retailer.
U.S. manufacturing and construction data to be
released. ISM manufacturing survey results are
set to be announced at 10 am U.S. Eastern time. Consensus
forecasts show a modest decline to 56.8 from July’s 57.1
reading. The July level was the strongest since April 2011,
driven by a sharp increase in new orders. Separately, July
construction spending data is expected to rebound from a
month-over-month contraction in June as both public and private
sector outlays rebound. Improvements in both measures would
continue broadly to support relative strength for the U.S.
economy.
Manufacturing activity in China cools. Official
China Federation of Logistics and Purchasing (CFLP)
manufacturing PMI for August registered at 51.1 from 51.7, the
first decline in six months. HSBC’s final measure for the
month came in at 50.2, versus the 50.3 flash estimate. The
private HSBC index differs from the official measure in
focusing on small and mid-sized companies. While the
manufacturing sector continues to expand activity as a slowing
pace, employment sub-indexes are a pressing concern in Beijing,
where near-universal employment remains a critical component of
the social contract.
Australian interest rates stay put. The
Reserve Bank of Australia made no shift in interest rates in
its monthly announcement today as expected. In its statement,
RBA Governor Glenn Stevens noted that data shows
“gradually improving business conditions and some recovery
in household sentiment after a weaker period around mid-year,
suggesting moderate growth in the economy is occurring.” A
second release of Australia’s second-quarter gross
domestic product is scheduled for release on Wednesday with
consensus forecasts for a moderation from the initial release,
with concerns over weaker potential Chinese demand for raw
materials.
Portfolio Perspective: A Straightforward Approach to
Impact Investing through U.S. Fixed Income —
Ron Homer and Catherine Banat, RBC Global Asset
Management
Traditionally, being a socially conscious investor required
acts of omission in terms of making a difference with your
money by avoiding investments in particular sectors or
companies, even if that meant occasionally lower yields.
That is changing. What today we call impact investing is
about a double-bottom line approach of overweighting
investments that promote causes or impacts that an altruistic
investor may cherish and also delivering a competitive
return.
According to a recent study by
J.P. Morgan and the Global Impact Investing Network (GIIN),
impact investing is expected to grow 19 percent by the end of
2014. And though driven by pension funds and foundations, the
movement is also attracting managers of multigenerational
wealth. Increasingly, they’re discovering that they can
add a socially conscious dimension to a standard U.S.
fixed-income allocation without giving up yield.
We’ve identified three portfolio modifications that we
believe have the ability to achieve just that. Each preserves
the liquidity and security that investors expect from
fixed-income portfolios.
Impact
agency mortgage-backed securities: Some investors
want to provide capital to low- and moderate-income families,
support affordable housing or promote home ownership in
specific geographic areas. They can by shifting to impact MBS.
These come with the same government backing as generic MBS.
Because they tend to have lower loan balances, they can also
provide more stable cash flow.
Impact agency commercial mortgage-backed
securities: Replacing part of Treasury portfolios with
CMBS can support affordable rental housing, health care
facilities in underserved communities or care for the elderly
and disabled. Impact agency CMBS can provide higher levels of
call protection and agency quality credit characteristics.
Impact taxable municipal bonds: These may
provide the most impact bang for the investment buck. They can
directly support social causes such as access to higher
education to care of the elderly. Multifamily housing bonds,
for example, help provide affordable housing. Since
they’re sold by housing finance agencies, they typically
have lower default rates and may feature government
guarantees.
Again, we believe each of these securities can provide at
least as much cash flow and return potential as their nonimpact
counterparts. More importantly, each offers the unlimited
upside of helping investors feel good about where their
money’s going.
Ron Homer is co-founder of the RBC Access Capital
Community Investment Strategy and Catherine Banat is an
institutional portfolio manager at RBC Global Asset Management in
the U.S.