They aren't necessarily the first mutual funds that come to mind as a place to take cover during turbulent markets, but two funds that invest in mortgage-backed securities with an eye towards community development are doing relatively well.
Through last Tuesday, the $712-million CRA Qualified Investment Fund (CRAIX) from Community Capital Management Inc. was up 1.19% year-to-date, and 2.79% for the 12-month period, according to Morningstar Inc. of Chicago.
And the $543-million Access Capital Strategies Community Investment Fund (ACCSX) from Voyager Asset Management Inc. of Minneapolis, was up 0.32% year-to-date, and 2.10% for the 12-month period, according to Morningstar.
Both funds invest in mortgages that go to low- and moderate-income families.
"People at first blush will not want to touch them," said Lewis J. Altfest, president of New York-based L.J. Altfest & Co. Inc., which manages $500 million in assets.
But mortgages that go to low- and moderate-income families aren't necessarily subprime.
SUBPRIME AVOIDANCE
Both the CRA and Access funds stay away from subprime mortgages, choosing instead to invest in high-quality mortgages backed by
Fannie Mae of Washington,
Freddie Mac of McLean, Va., and the Government National Mortgage Association of Washington.
The government took over Fannie and Freddie in September be-cause they were hurt by exposure to subprime mortgages in their own portfolios.
But the two companies were never involved in actually underwriting such mortgages, said Todd Cohen, principal of Community Capital Management of Weston, Fla.
Fannie and Freddie bonds were always relatively safe, and now that the government "has given almost an explicit guarantee" they are perceived as being even safer, said Jason Graybill, a senior managing director with Carret Asset Management LLC of New York, which manages $1.7 billion.
In fact, bonds from Fannie and Freddie are trading at virtually the same price as Ginnie Mae bonds, which do carry an explicit government guarantee, he said.
While he agrees that taxable municipal bonds look attractive, Mr. Graybill said he is not that enthused about mortgage backed securities — particularly those from Fannie and Freddie.
"We take a contrarian view," he said. "Should you view them as government backed entities, or corporate issues? We think they are high quality with the government backing, but we don't know that will remain."
Given the uncertainty, short-term, high-quality corporate bonds appear much more attractive, Mr. Graybill said.
They are cheaper and offer greater yields, he said.
"Their risk/reward benefit is much better," Mr. Graybill said.
LIQUIDITY
Maybe so. But given the solid performance and the social implications, at least one adviser said he has no plans to reduce his exposure to the CRA fund anytime soon.
"It's basically helping to create liquidity in the affordable housing market," said Andy Loving, a certified financial planner at Just Money Advisors in Louisville, Ky.
A socially conscious investing firm with $35 million under management, Just Money Advisors uses the CRA fund as a core holding, Mr. Loving said.
"When I heard about the CRA fund I was all over it," he added. "It's been a very competitive fund with very high social impact."
The CRA fund is different from the Access fund in that in addition to investing in mortgage backed securities, it invests in taxable munis used to finance community and economic developments.
It's those bonds that have been the best performers recently for the fund, Mr. Cohen said.
The solid performance of taxable munis, as well as mortgage-backed securities, can be attributed to their relative safety, he said. All come with some level of government guarantee, he said.
As a result, in "tumultuous times" the CRA fund does well, Mr. Cohen said.
E-mail David Hoffman at [email protected].
