[HIP] 3 Ways to Reduce Risk in Your Portfolio; HIP100’s 4th Birthday; Illuminating Events

 

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IN THIS ISSUE:

I. Building a Forward-Looking Portfolio and a Better World; 4 Years of the HIP100:  The HIP100 Portfolio now has a 4-year track record. See how a HIP-weighted approach can add resiliency, increase positive benefit for society and seek to realize your goals for potential impact + profit

II. 3 Strategies for Reducing Risk in Your Portfolio: What knowable – but ignored – risks are lurking in your investments?

  • Reducing Fossil-Fuel Risks
  • Avoiding Muni Bond Default Risk
  • Investing via ‘Factors’ to Optimize Risk-Return

PLUS Illuminating Events and the HIP book in the right hand column —–>

Four-Year Track Record
The HIP 100: Seeking
Higher Positive Impact, and
Forward-Looking Resiliency

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Since our founding in 2006, our mission at HIP has been clear:  helping investors like you, along with your advisers and fund managers, to build a better world though your portfolio choices.

The HIP methodology focuses on how to create the potential for positive Human Impact + Profit at the same time.  “Doing good” and “making money” can be compatible.

HIP’s Scores now cover more than 4000 companies globally, totaling 85% of global equity value and $24 trillion of corporate bond value. In addition, we now rate more than 400 issuers of muni bonds, including governments and non-profits, on how they deliver value to society in line with their “public good” mission.

Our HIP Scores quantify the impact of solving human needs — across the 5 components of Health, Wealth, Earth, Equality and Trust — and how companies and issuers of financial securities realize that potential.

HIP Scores also identify “knowable but ignored” risks, intangibles and sustainability factors. As 80% of the S&P500 market value is not tracked by traditional financial statements, the HIP Scores empower investors with real, quantifiable information to make your portfolio more resilient to future risks and shocks.

Today’s investment opportunities now include the HIP100 portfolio, which re-weights the S&P 100 firms, by their HIP Score — to account for the risks and opportunities that are not yet built into most investor expectations of shareholder value.

The HIP100* Portfolio re-balances the S&P100 components on actual measurable results of sustainability, using 30 metrics including customer satisfaction, employee retention, greenhouse gas intensity, Board diversity and legal exposure. More investors are considering the HIP100 as a substitute or complement to their current S&P100 allocation. 

This week marks the 4th anniversary of the HIP100. The track record of the HIP100 is shown below, before and after fees.  Some “net of fees” numbers in the early years of the HIP100 are lower than expected because of the minimum fees charged by the financial brokers.

PERFORMANCE* of the HIP100 Portfolio
Figures are cumulative, not-annualized and unaudited
Inception date = July 30, 2009

Timeframe

  HIP 100

  Before Fees

 S&P 100
Index

 HIP100 Net
  of Fees**

Since Inception

 +77.77%

 +71.28%

 +66.75%

First Year

 +15.19%

 +11.22%

 +11.33%

2010 Year

 +14.65%

 +12.51%

 +12.20%

2011 Year

 + 0.85%

 +3.18%

  – 0.72%

2012 Year

 +16.22%

 +16.05%

 +14.60%

2013 YTD

 +15.56%

 +12.73%

 +14.79%

* See HIP Disclosures and Disclaimers atwww.HIPinvestor.com and at bottom of this newsletter. Fees allocated to month but collected quarterly in advance. ** Cumulative performance since HIP 100’s inception date of 7/30/2009 until 6/30/2013. ‘First Year’ performance is 7/30/2009 to 7/31/2010; Annual calendar performance as of Dec. 31;  2013 Year To Date (YTD) 2013 performance ending 6/30/2013.

Actual net-of-fees results since inception of the model HIP100 Portfolio and the S&P 100 indexed portfolio. Percentages include reinvested dividends and stock splits, and each deducts fees and trading costs quarterly based on a $100,000 beginning balance at the inception date. Past results are not indicative of future performance. Results may differ by size of portfolio. See full disclosures and disclaimers at bottom of this newsletter and at www.HIPinvestor.com

LEARN more about the HIP100 Portfolio and other HIP-rated and HIP-managed investment choices for your portfolio HERE

Reducing Risk 1:
Minimizing Fossil-Fuel Exposure

Are there hidden surprises in your investment portfolio, like the risks associated with mining coal, extracting oil and fracking for natural gas?

With 350.org, HIP jointly published the reasoning and logic for going fossil-free in portfolios for investors, especially pensions of cities, counties and states.READ the report and SEE a range of investment choices across asset classes that seek to reduce risk and enhance potential for financial returns:”Resilient Portfolios and Fossil Free Pensions

Forbes contributor Logan Yonavjak summarizes the latest research and approaches to fossil-free investing in July as well: Divesting From Fossil Fuels Means A Cleaner, Safer & More Resilient Future. Logan reframes carbon divestment as an opportunity for creative solutions, rather than a restriction for investors.

Barron’s contributor Ellie Winninghoff writes about “The Financial Returns of Grass” and how farmland and ranches managed in a sustainable way can be beneficial for investors, our food supply and society overall.

First Affirmative Financial Network hassurveyed investors and advisers about their preferences for fossil-free investing. The First Affirmative surveyed “more than 2,000 sustainable-investing industry professionals to weigh-in on 12 questions regarding fossil fuel-free portfolios and related investor concerns.

“FAFN’s survey was completed by 466 licensed investment professionals, asset managers, investors, and representatives of SRI investment companies, community development financial institutions, and social research/proxy voting organizations. Key survey findings include:

  • 77% see growing risks for investors associated with fossil fuel company holdings in their investment portfolios.
  • 30% of financial professional already do – or are getting ready to – offer fossil-fuel free portfolios to investors.
  • 63% believe that investors will in the next 10 years start divesting in meaningful numbers from fossil-fuel companies due to climate change implications of such energy sources.”

Meanwhile, a recent feature by Motley Foolcontributor Alyce Lomax catalogs work by Ceres and US SIF to educate people around Sustainable and Fossil Free Investing. Read Alyce’s full feature HERE

Ceres released a rundown of shareholder resolutions regarding fossil fuel issues. This past proxy season, an impressive 110 resolutions were filed at 94 major companies, tackling fracking, fossil fuel reserve risks, and climate change risks and opportunities. Here is Ceres’ full list of the 2013 shareholder resolutions, which includes companies that have agreed to address climate change and environmental issues, as well as the results for those shareholder proposals that went to vote.”

US SIF is releasing a series of handbooks for investors themed “How Do I SRI.”  The first guide is called “Investing to Curb Climate Change: A Guide for the Individual Investor

Carbon’s role in limits to growth is also profiled in the new research report from actuaries: “Resource Constraints: sharing a finite world.” READ it HERE.  Among other factors, such as soil degradation and global population, carbon, and fossil fuel use, is seen as a major limit to growth:

“For every resource examined the overall trend is one of more expensive extraction and increasing prices. In addition the environmental damage caused by the use of these resources is becoming more expensive – in particular through the impact of increased extreme weather events driven by climate change.”

If you, your clients or fiduciaries are concerned with future risks, including climate change, read these new features, including Resilient Portfolios and Fossil-Free Choicesto outline how to manage that risk and transition to a more resilient portfolio.

Reducing Risk 2:
Avoiding Muni Bond Defaults

With public financing under intense scrutiny and limited funding, what knowable – but ignored – risks could exist in your bond portfolio?

In 2013, HIP Investor expanded its HIP Scores to cover muni-bond issuers, which include cities, counties and states. SNW Asset Management integrates HIP Scores into Impact-Rated Bond Portfolios, which seek to reduce risk and enhance the potential for returns. How do HIP Scores quantify risk, as well as the delivery of “public good” results for society?

Presidio MBA Ryan Gerlach researched the correlations of recent municipal defaults with the factors tracked by HIP Scores:

“Can these HIP impact ratings correlate with defaults of muni bond issuers? There have been four relatively noteworthy municipal defaults in recent years – Jefferson County, AL; Harrisburg, PA; Stockton, CA; and San Bernardino, CA – and another issuer, Philadelphia, PA, which has not defaulted but has recently entered into serious discussions with creditors regarding its financial future. By using historical data, we can see how these issuers would have been rated for impact in advance of their default, thereby giving some indication as to whether the factors HIP measures could be predictive.

“All defaulting municipalities, plus Philadelphia, score below average in their overall score compared to other impact-rated bonds. HIP Scores show that none of the defaulting issuers are rated above the 30th percentile in more than one sub-category of impact.

“HIP’s Health category is highly correlated with the overall rating for bonds issued by cities, counties, and states. Tellingly, rateddefaulting issuers score especially low on these factors with Wealth indicators also showing poorly.

  • Compared to the national average, all five of the defaulting or at-risk municipalities had murder rates close to or greater than double the national average.
  • Only Jefferson County’s high school and college attainment rates approached national norms, the rest fell well below.
  • All five were in the top third in terms of obesity rates.
  • Again with the exception of Jefferson County, all had poverty and unemployment rates roughly double the national figures.”

In July, Detroit’s record $18 billion bankrupcy case is spurring concern about which muni bonds might risk default next. Not surprisingly Detroit is in the bottom quartile (and third to last) in our HIP Sustainable Cities rating. SNW Asset Management, which analyzes the fundamentals of every bond it manages for investors, share its perspectives on risks and the bond markets.

By focusing on HIP metrics, both muni-bond investors and cities like Detroit can seek to rebuild themselves as a sustainable city for the future.  Investors can use HIP Scores as a tool for evaluating risk; HIP Scores could be integrated into the issuance of muni-bonds to become an impact-rated bond as well.

LEARN more about Impact-Rated Bond Portfolios rated by HIP and managed by premier fixed-income manager SNW Asset Management.

Risk Management 3: Optimizing Risk-Return with “Factors” 
Risk-factor analysis and new metrics are on the rise with forward-thinking investors. Which risk factors exist in your investment portfolio that you are not measuring or managing?

Arizona State Retirement Systems (ASRS) recently launched four ETFs with iShares (owned by BlackRock), focused on measuring and managing 4 specific factors: Size, Value, Momentum and Quality.

Arizona’s pension managers say: “That actually was part of a collaborative process that we’ve been working on for about three years. The idea was to be able to create some type of an overlay program to enable us to adjust the factor-risk exposure of our combined equity set.

“The interest in ETFs on our part came as a result of realizing that by one, or just a few, trades, we could conceivably adjust this exposure in order to neutralize the structural active factor risk building up systematically across the total equities component.”

Read the full feature HERE to see if these strategies fit with your portfolio.

ADDRESSING RISK FACTORS INCLUDES
“CREATING GOOD WORK” FOR PEOPLE

HIP Investor’s Scores for investors, advisors and fund managers help to measure and manage knowable but ignored risks.

An innovative approach to mitigating risks and building a better world is outlined by Ron Schutz, editor of the book Creating Good Work.

“Studies from Harvard, MIT, HIP Investor, and dozens more demonstrate the positive economic impact implementing environmental and social innovation programs have on corporate market value. We also know the importance social programs have in providing service to our communities as well as generating a financially healthier community. The studies quantitatively show the corporate financial impact of ‘doing well by doing good.’ ”

READ Creating Good Work and how it can mitigate risk and build a better world HERE.

Join the HIP team at one of the many Impact Investing events listed in the right hand column.     ——————>>>

HIP INVESTOR’S DISCLOSURES
AND DISCLAIMERS

 This is not an offer of securities. Past performance is not indicative of future results.

The views expressed by R.Paul Herman are for informational and educational purposes only, and are not investment recommendations or an offer of securities.

For a full description of services and disclosures (including fees) relating to separately managed accounts, portfolio management, and wealth management at HIP, please read  HIP’s Part II of Form ADV (which can be found athttp://adviserinfo.sec.gov). 

Managed accounts may lose value and risk possible loss of principal.  Past performance is not indicative of future results. HIP Investor Inc. or its Advisory Representatives do not provide tax advice. You should consult with your tax advisor on specific tax issues.

This newsletter should not be construed as a solicitation or offer to sell investment advisory services except where HIP Investor, Inc. is registered or where an exemption or exclusion from such registration exists.

RSVP for these Illuminating EVENTS

NewMetrics.susprise

September 24-25: The New Metrics of Sustainable BusinessPhiladelphia, PA on the Wharton School’s campus at UPenn

“As the definition of value continues to evolve, the demand for business to demonstrate its ability to create value of various forms for all stakeholders – not only profit for shareholders – is increasing, and the question of how this value is identified, measured and communicated becomes paramount.

This 2-day, in-depth discussion with sustainability’s top leaders and strategists will expand the ways business creates, quantifies, and manages the value using New Metrics.”

 DOWNLOAD and READ the
FREE whitepaper on NewMetrics
 

 RSVP HERE for September 24-25th in Philadelphia

Commit

October 8-9: The Commit Forum: Good Business Makes The DifferenceNew York, NY

“The annual COMMIT!Forum calls on business and sustainability leaders to share their insights on how to improve the role of business in society and how corporate responsibility and sustainabilitydrive sales, save money and improve asset values.

This year’s over-arching theme is “Good Business Makes the Difference” includes these areas:

  • Responsible Brands
  • Financial Scandals
  • Sustainability + Energy
  • Workforce Partnerships
  • and more

READ features on sustainability, including those authored by HIP’s Paul Herman and Zhaoqi Fu, at TheCRO.com: 
‘Neo-Divestiture’ – how “divestors” are important as investors

‘Honor Thy Mother’ – how more women on Boards and executive teams can add shareholder value

 RSVP HERE for October 8-9th in New York City

netimpact_conference2013_masthead

October 24-27th: Net Impact: Change Starts Here,San Jose, CA

“Nearly 3,000 thinkers, doers, and dreamers will tap the energy of Silicon Valley to supercharge world change.

Learn from 100+ sessions across 11 tracks designed to take your inspiration, innovation, and impact to the next level.

Engage with 350+ inspiring speakers from across sectors breaking new ground in social and environmental change, and discover how you can use your career for good.

Connect with more than 90 companies, nonprofits, and social enterprises paving the way in social and environmental responsibility.

 RSVP HERE for October 24-26th in San Jose, Calif.

SRI.Conference

October 28-30th: The SRI Conference 2013Colorado Springs, CO

The SRI Conference on Sustainable, Responsible, Impact Investing is the premier annual gathering of investors and investment professionals working to direct the flow of investment capital in more positive, healthy, and transformative ways.

The SRI Conference offers many opportunities to meet and learn from passionate, creative people from all corners of the sustainable and responsible investment industry (SRI) in the United States and around the world.” This is the 24th annual conference.

 RSVP HERE for October 28-30th in Colorado Springs

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