Taxable Municipals: Social, Environmental and Portfolio Benefits

August 2016 | Sustainable Fixed Income

Taxable municipal bonds may be used to finance a variety of social and environmental initiatives such as affordable housing and healthcare, neighborhood revitalization, job creation, energy efficiency, wind turbines, solar panels, education and healthy communities, to name just a few.   

Two examples of the positive community outcomes from taxable municipal bonds are below:

Iowa Industrial New Job Training:  the program provides businesses, which are expanding their Iowa workforce, with new employee training.  It is administered by Iowa’s 15 community colleges and financed through bonds sold by the colleges. 

Massachusetts Housing Finance Agency Rental Development Bond Program: its focus is to finance well-planned and designed dwelling units for low- and moderate-income persons in the State.  One property, Spencer Green, features 48 new affordable apartments on the site of the former Chelsea Armory.  Green and environmentally sustainable building practices are employed throughout from photovoltaic panels that generate electricity to an underground cistern that recycles rain for irrigation to energy efficient systems throughout the building.

Taxable municipal securities, just like their counterparts in the tax-exempt market, are still backed by state and local governments and may offer less exposure to risks that may have an impact on the values of other taxable products such as corporate bonds.[1]

This point is the topic of a recent CCM report, “The Illusion of Corporate Bond Diversification in a Balanced Portfolio”.  In the paper, we discuss how replacing a portion of a balanced portfolio’s corporate bond exposure with taxable municipals may be the optimal choice from a risk/return perspective because it can provide:

  • greater diversification benefit and improved capital preservation, especially during volatile down equity markets when it’s most important;
  • superior credit quality; and
  • favorable yields and relative returns.

For those interested, a copy of the report is available by clicking here

Many investors may not be familiar with taxable municipals and the multiple positive benefits they can offer within their community and within their portfolio.  We invite you to take a closer look.    


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