The Praxis Impact Bond Fund (MIIIX and MIIAX) reached an important twenty five-year milestone this year.
The Praxis Impact Bond Fund invests in carefully selected, fixed-income securities that seek to deliver a positive impact on the world, within a core, well-diversified bond portfolio. The fund incorporates values-based restrictive screens and active environmental, social and governance (ESG) data integration. It also employs a corporate engagement strategy and invests in positive impact bond investments that benefit the climate and communities. In addition, one percent of the fund’s assets are committed to deep social impact community development investing.
“We are proud of the Praxis Impact Bond Fund’s investment results over 25 years and the significant impact the fund has had investing in positive impact bonds,” said Chad Horning, CFA®, President of Praxis Mutual Funds®. “Investors have been able to earn competitive returns while also investing with their conscience.” Co-portfolio Managers Benjamin Bailey, CFA®, and Chris Woods, CFA® have significant experience managing a high-quality bond portfolio using a values-based approach to socially responsible investing.”
On the occasion of this milestone, Benjamin Bailey addressed a few questions about the Praxis Impact Bond Fund.
The Praxis Impact Bond Fund is among the oldest responsible investing bond funds. What has changed over the tenure of the fund?
There were very few SRI fixed income bond funds at the inception of the fund in 1994. The Fund began as a $10 million bond fund that was run like an insurance portfolio with social screens. It made relatively large calls on individual corporate bonds that looked cheap and individual corporate diversification was a secondary goal. Over the next decade the management philosophy was refined, and individual corporate diversification became an imperative part of the fund. This more measured risk-taking approach has proved to be a significant contributor over the past 15-17 years. Our 15-year track record according to Morningstar puts us in the 34th percentile (among 148 funds in the US Fund Intermediate Core Bond category for the 15 year period ending July 31, 2019).
Our responsible investing approach has also evolved. We’ve always screened out bonds for issues that didn’t match our core values and for the past 19 years we have invested 1% of the portfolio in community development investments. But in 2006, we began purchasing investments that had a specific positive impact along with a positive financial return. We bought a bond issued from the International Finance Facility for Immunization (IFFIm), a new international development institution designed to accelerate the availability of funds to be used for health and immunization programs through the GAVI Alliance in 70 of the poorest countries around the world. This idea of using bond investments for impact wasn’t entirely new as we already had a solar project bond that we purposely bought for its impact, but the market was still in its infancy. After 2009 the positive impact bond market took a next important step. We invested in the first US dollar green bond which was a deal brought by the International Bank for Reconstruction and Development (IBRD). Over the next few years, more issuers found how important the green bond market could be. We invested in many other firsts including the first FNMA multifamily green bond, the first U.S. Corporate green bond, the first public solar ABS, the first U.S. ABS green auto loan and many more. Today more than 30% of the Praxis Impact Bond Fund is in bonds that have a positive impact on the climate and community. These bonds must meet our same risk versus reward criteria that other investments must meet, and they need to advance our goal to outperform over a market cycle. We’re always on the lookout for opportunities to grow this part of our portfolio.
The Fund incorporates values-based screens and active ESG integration. Can you talk more about this?
We screen out companies that don’t match our deeply held values when they are involved in alcohol, tobacco, gambling, weapons production and more. We include the ESG data of companies in their issuer research reports and screen out companies with low ESG scores. In addition to revenues, debt to EBITDA, interest coverage and other financial information, we evaluate companies based on their ESG risks and opportunities. As long term holders of bonds, we don’t want to invest in a company that doesn’t understand the ESG risks they have in their business model. We generally overweight companies with higher ESG scores and underweight (or don’t hold at all) those companies with low ESG scores. This requires some judgement on our part as there are times when we disagree with the ESG ratings firms or the major ESG rating firms don’t agree with each other.
Can you point to the social or environmental impact investment you’re most proud of and discuss the real-world impact that initiative made?
I think my favorite all-time real-world impact is the investments we made with the IFFIm when we bought their inaugural offering in November 2006 and then their second US Dollar offering in June 2013. Their first issuance in November 2006 was for $1 billion, and their goal was to raise $4 billion over the next ten years which they calculated would save as many as 10 million lives. They were going to immunize more than 500 million children against vaccine preventable diseases before 2015. In their latest report, they noted how IFFIm made a significant contribution to eradicate polio by investing more than $191 million to help develop and license oral polio vaccine products. IFFIm’s support contributed to a 95% decline in polio cases in Nigeria and India.
About Praxis Mutual Funds
Founded in 1994, Praxis Mutual Funds is a leading faith-based, socially responsible family of mutual funds designed to help people and groups integrate their finances with their values. Praxis is the mutual fund family of Everence® Financial, a comprehensive faith-based financial services organization helping individuals, organizations and congregations. To learn more, visit praxismutualfunds.com and everence.com, or call 800-348-7468.