"Of Mutual Interest"-Todd Cohen, CIO, Community Capital Management
Friday, May 22, 2009SUSIE GHARIB: There are hundreds of socially responsible funds out there, but the CRA qualified fund is unusual. Not only is it a bond fund, but it takes a pro-active approach to helping revitalize communities. Erika Miller has more in tonight's "Of Mutual Interest."
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Taino Plaza looks unremarkable from the outside, just another government housing project in a low income neighborhood. But come to the building's rooftop and you'll see what makes this place special. It is covered with solar panels, which cut the building's energy usage in half. This is exactly the type of community development project the CRA qualified investment fund supports. Todd Cohen is the chief investment officer of the company that manages the fund. Cohen says the mission of the CRA qualified investment fund is special.
TODD COHEN, CHIEF INVESTMENT OFFICER, COMMUNITY CAPITAL MGMT.: When most people think about socially responsible funds, they think of the avoidance of objectionable practices such as alcohol, tobacco and firearms. Whereas our fund, all our investments seek to positively impact the community.
MILLER: The fund invests the majority of its assets in the highest quality, government supported mortgage-backed securities. The fund also buys taxable municipal bonds to support community development, as well as bonds that raise money for Small Business Administration loans. Here in the Bronx, the fund's investments helped this hardware store create new jobs. New York is far from the only state that is benefiting from the fund's investment. Over the past decade, the fund has purchased $2.5 billion worth in economic and community development securities in all 50 states. The name of this fund comes from its origins -- a way for banks to meet the requirements of the community reinvestment act or CRA. That law is designed to encourage lending in low income areas. But Cohen says the fund also makes sense for retail investors seeking a reliable income stream.
COHEN: It's a great time for our fund because many of the government's efforts to revitalize the economy are in the very same sectors in which we've been trafficking in for the last 10 years. For instance, Fannie and Freddie are going to be vital components to the government's efforts to stabilize the housing markets which are one of our largest holdings.
MILLER: 2008 was a great year for the fund. It returned 4.25 percent, when most intermediate term bond funds lost more than that. So far this year, the fund is up 2.4 percent. Morningstar analyst Lawrence Jones warns the expense ratio is high at nearly 1 percent, but his firm still gives the fund four stars out of five.
LAWRENCE JONES, MUTUAL FUND ANALYST, MORNINGSTAR: Over the long-term, it is designed to provide fairly competitive results for a fund that actually has a reasonably narrow mandate. I think it's rarely going to be at the top of the pack, again except during periods of extreme credit market stress.
MILLER: But there is one more thing Jones says investors should know before buying into the fund. In 2006, when Todd Cohen was at a different firm, he was sanctioned by the SEC for not properly supervising two traders a decade ago. It's a concern Morningstar recognizes.
JONES: The fact that he's chief investment officer and presumably does have an oversight role to the fund again does raise a little bit of a red flag here, given the past infractions. But that being said I still think this is a very unusual fund. It's a very interesting one to look at. It's just something that investors have to make sure they are comfortable with and go in clear eyed knowing all the facts.
MILLER: And as the fans of the CRA qualified investment fund point out, it's a unique opportunity to revitalize low income communities and your bank account at the same time. Eriika Miller, NIGHTLY BUSINESS REPORT, New York.
