- Enhanced client reporting for Breckinridge's sustainable municipal bond portfolios is intended to improve transparency and clarity about holdings with regard to certain material environmental, social and governance (ESG) factors.
- The new reporting compares holdings at the portfolio or composite level with the ESG characteristics of bonds in a relevant benchmark index.
- The enhanced client reports are specific to each investor’s portfolios.
Breckinridge has enhanced client reporting for sustainable municipal bond portfolios. The new reports should improve transparency and clarity about holdings for investors with regard to certain material environmental, social and governance (ESG) factors.
Beginning with second quarter 2022 reports, investors in Breckinridge sustainable bond strategies will receive a report that compares holdings at the portfolio or composite level with the ESG characteristics of bonds in a relevant benchmark index for the strategy. The new report presents aggregate data about the intended use of proceeds for bonds in the portfolio or composite and offers a profile of the portfolio’s bonds compared to the benchmark.
With respect to use-of-proceeds information, the reports will have transparency into the types of projects and purposes funded with the bonds owned in client accounts. For example, holdings will be aggregated as “environmental/conservation” or “education/k-12.” The reports also details the number of green, social, or sustainable bonds, if any, that are held in the portfolio.
With respect to metrics, the data presented are typically drawn from Breckinridge’s ESG frameworks. None of the metrics, alone or in conjunction with the others, solely drives portfolio inclusion. Also, portfolios are not built with the purpose of outperforming a benchmark on any single ESG metric. However, we expect the metrics to provide greater transparency into holdings for clients. The comparisons shown look at a number of ESG characteristics, including climate risk, water and air quality, racial integration, among others, that contain information about the specific bonds financing ongoing operations and projects within municipalities.
The new client reports are specific to each investor’s portfolios. A report that covers the Intermediate Sustainable Tax-Efficient Composite—aggregations of one or more portfolios managed according to a similar investment mandate—is also available.
This material provides general and/or educational information and should not be construed as a solicitation or offer of Breckinridge services or products or as legal, tax or investment advice. The content is current as of the time of writing or as designated within the material. All information, including the opinions and views of Breckinridge, is subject to change without notice.
Any estimates, targets, and projections are based on Breckinridge research, analysis, and assumptions. No assurances can be made that any such estimate, target or projection will be accurate; actual results may differ substantially.
Past performance is not a guarantee of future results. Breckinridge makes no assurances, warranties or representations that any strategies described herein will meet their investment objectives or incur any profits. Any index results shown are for illustrative purposes and do not represent the performance of any specific investment. Indices are unmanaged and investors cannot directly invest in them. They do not reflect any management, custody, transaction or other expenses, and generally assume reinvestment of dividends, income and capital gains. Performance of indices may be more or less volatile than any investment strategy.
Performance results for Breckinridge’s investment strategies include the reinvestment of interest and any other earnings, but do not reflect any brokerage or trading costs a client would have paid. Results may not reflect the impact that any material market or economic factors would have had on the accounts during the time period. Due to differences in client restrictions, objectives, cash flows, and other such factors, individual client account performance may differ substantially from the performance presented.
All investments involve risk, including loss of principal. Diversification cannot assure a profit or protect against loss. Fixed income investments have varying degrees of credit risk, interest rate risk, default risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Income from municipal bonds can be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the IRS or state tax authorities, or noncompliant conduct of a bond issuer.
Breckinridge believes that the assessment of ESG risks, including those associated with climate change, can improve overall risk analysis. When integrating ESG analysis with traditional financial analysis, Breckinridge’s investment team will consider ESG factors but may conclude that other attributes outweigh the ESG considerations when making investment decisions.
There is no guarantee that integrating ESG analysis will improve risk-adjusted returns, lower portfolio volatility over any specific time period, or outperform the broader market or other strategies that do not utilize ESG analysis when selecting investments. The consideration of ESG factors may limit investment opportunities available to a portfolio. In addition, ESG data often lacks standardization, consistency and transparency and for certain companies such data may not be available, complete or accurate.
Breckinridge’s ESG analysis is based on third party data and Breckinridge analysts’ internal analysis. Analysts will review a variety of sources such as corporate sustainability reports, data subscriptions, and research reports to obtain available metrics for internally developed ESG frameworks. Qualitative ESG information is obtained from corporate sustainability reports, engagement discussion with corporate management teams, among others. A high sustainability rating does not mean it will be included in a portfolio, nor does it mean that a bond will provide profits or avoid losses.
Net Zero alignment and classifications are defined by Breckinridge and are subjective in nature. Although our classification methodology is informed by the Net Zero Investment Framework Implementation Guide as outlined by the Institutional Investors Group on Climate Change, it may not align with the methodology or definition used by other companies or advisors. Breckinridge is a member of the Partnership for Carbon Accounting Financials and uses the financed emissions methodology to track, monitor and allocate emissions. These differences should be considered when comparing Net Zero application and strategies.
Targets and goals for Net Zero can change over time and could differ from individual client portfolios. Breckinridge will continue to invest in companies with exposure to fossil fuels; however, we may adjust our exposure to these types of investments based on net zero alignment and classifications over time.
Any specific securities mentioned are for illustrative and example only. They do not necessarily represent actual investments in any client portfolio.
The effectiveness of any tax management strategy is largely dependent on each client’s entire tax and investment profile, including investments made outside of Breckinridge’s advisory services. As such, there is a risk that the strategy used to reduce the tax liability of the client is not the most effective for every client. Breckinridge is not a tax advisor and does not provide personal tax advice. Investors should consult with their tax professionals regarding tax strategies and associated consequences.
Federal and local tax laws can change at any time. These changes can impact tax consequences for investors, who should consult with a tax professional before making any decisions.
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