Monday, June 23, 2008

Local Vs. Green: Cage Match

There is a lot of barking about green energy, sustainable lifestyles, and all things eco. In the end though, it's far more important to be local than green. Supporting local economies, especially agriculture, would save far more energy than any green solution. The cost of travel for a tomato out of season versus buying tomatoes locally during the season and canning them yourself is obvious, but even the externalities are obvious: more pollution, greater infrastructure strain, more exposure to disease (like the recent salmonella scare) when not buying local.

As an investor, I like the idea of having a small portion of my stock allocation in "local only" companies. Even when it means I own some volatile small cap stocks, it gives you a proxy vote and allows you to help shape your local community as a shareholder. Plus, you have a local knowledge of the companies you invest in: you may have friends that work there, you can see their expansions (or retractions), you know their community involvement... it's like rooting for a sports team. Investing locally is VERY HARD, takes a lot of research, and can be a money losing proposal - especially in tiny tiny markets or states. But there's no reason "local" can't be expanded to a more regional presence (ie, a Rhode Island native investing in Connecticut and Massachusetts companies as well). For more info on local investing, check this awesome listing on PBS's Nightly Business Report website.

On a macro level, you may not be able to invest locally quite the same way, but you can at least try the CRA Qualified Investment Fund:

Ticker: CRATX
Inception: March 1, 2007 (officially, but CRA Shares have longer track record)
Asset Type: Mutual Fund - Bonds
Markets: Domestic
Smug Category: Bond
Included in Smug Asset Pool?: Yes

YTD -0.23%
1 year 5.47%

Min Investment: $2,500
Min Retirement Investment: $2,500
Minimum Additional: $1,000
Sales Load:
$2,500 to $24,999.99: 0.00% of offering price
$25,000 to $99,999.99: 0.00% of offering price
$100,000 or more: 0.00% of offering price

Management Fees: 0.40% for 2007
12b-1 Fees: 0.25%
Other fees: 0.31%
Total Annual Fee: 0.96% for 2007

Another no-load no-redemption-fee fund, CRA fund actually has a 7+ year track record, but they changed their name and ticker last year, hence the shortened record. CRATX invests entirely in debt that qualifies for the Community Reinvestment Act of 1977. Now, the CR Act has its detractors, and one could even argue that it helped perpetuate (some say "caused, which in my opinion is ridiculous) the subprime issue. In the end, CRA does a good job (if not bureaucratic job) of building housing in local communities for those who need it. CRA detractors usually forget that it's not the individuals to whom loans are made at fault, it's the securitization of loans, poor rating system, and Wall Street greed that caused subprime. But why take responsibility when you can pass the buck to poor folks?

As debt funds go, CRATX offers a good deal of leg on its income at 4.25% SEC yield, and they have some really nice details about the effect the fund has on local communities (see the charts in the PDF): 140,000 affordable rental units, 4,660 mortgages, $27.3M in affordable healthcare, $121.4M in community redevelopment, etc.

So feel smug and give it a look - another nice compliment to your socially responsible, sustainable portfolio. As always, see my disclaimer to the right of the page.

1 comment:

Joe said...

I think you're missing some information. Whatever you've heard about the CRA somehow being related to the subprime meltdown is just echoes of right-wing pundits parroting certain lobbyists, people who would like to do away the CRA for their own reasons.

The CRA was designed to ensure that minorities with good credit can obtain loans when banks avoid them solely because of the color of their skin. The CRA has nothing to do with the companies that perpetrated the subprime crime.

The fact is, the CRA was passed in 1977 while the mortgage crisis started just a few years ago for entirely unrelated reasons. 80% of the subprime loans in question were made by companies NOT SUBJECT TO THE CRA, including CitiMortgage, Household Finance and Countrywide Financial, well known for their predatory lending practices and an appetite for risk levels far beyond anything the CRA would support. The rest of the loans were made by banks trying to follow the herd.

This herd stampeded not towards borrowers supported by the CRA, for rather into lending and refinancing for borrowers of no concern to the CRA in Phoenix, Las Vegas, Miami and San Diego, places which are now at the center of this crisis, in neighborhoods with with nary a single disadvantaged minority to be found.

Companies like Countrywide were able to create the subprime bubble due to recent deregulation by the Republican-led Congress and certain friends of theirs on the other side of the aisle. Further deregulation then allowed those predatory loans to be securitized without responsibility for loan quality by the companies that are now failing and taking us all down with them, like Bear and Lehman.

All this was set in motion by the people who brought you the Enron, WorldCom and Adelphia scandals, using tools like the Commodities Futures Modernization Act written in 2000 by former senator Republican Phil Gramm and his wife, former Enron board member and CFTC commissioner Wendy Gramm...need I say more?

Now they want to shift blame to the CRA, and to groups like ACRORN that have used the CRA to do a world of good in places far, far away from the current centers of the mortgage crisis. The people trying to somehow relate the CRA to this mess have an ideological, religious dislike of what SRI and the CRA stand for, and they don't let facts stand in their way. Don't be fooled.