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OWNS ETF taps capital markets to close racial-wealth gap

The exchange-traded fund invests in agency MBS secured by home loans to minorities and lower-income borrowers

The Impact Shares Affordable Housing MBS ETF, also known as OWNS, is an exchange-traded fund with the ambitious mission of seeking to tap the capital markets to address long-standing affordable-housing and racial-wealth gap issues in U.S. society.

Since its inception last summer, OWNS has focused on investing in agency mortgage-backed securities (MBS) that are collateralized by custom-created mortgage pools. Those securitized loan pools currently include 375 mortgages on homes owned primarily by minority and low-to-moderate income (LMI) families. 

The exchange-traded fund is advised by investment manager Impact Shares, with Community Capital Management (CCM), a pioneer in fixed-income social-impact investing, acting as a subadvisor. Some 82% of the loans backing the MBS now owned by the OWNS ETF have been made to low- and moderate-income borrowers, according to data provided by Impact Shares, with 196 loans made to minority women borrowers.

“The ETF has invested in loans across 37 states plus the District of Columbia, including 24 unique persistent poverty counties,” Impact Shares notes in an announcement hailing the first anniversary of OWNS. 

An ETF is a pooled investment security that is like a mutual fund but differs in that it can be traded on a stock exchange. In the case of OWNS, it is traded through the New York Stock Exchange.

Impact Shares is a nonprofit investment firm that manages several socially responsible exchange-traded funds, including OWNS — which was launched in late July 2021. It is an ETF focused on purchasing agency MBS that are secured by “pools of mortgage loans made to minority families, low- and moderate-income families, and/or families that live in persistent poverty areas,” according to Impact Shares’ website.

In addition, the ETF invests in MBS backed by loan pools sourced from non-traditional loan originators, including Community Development Financial Institutions and minority-owned banks.

The OWNS ETF is still small by industry standards and struggling to grow and improve returns. As of the end of August, according to Impact Shares’ website, OWNS had nearly $97 million in net assets, with some 5.45 million shares outstanding at a market price of $17.80 per share — with a year-to-date return of -8.44%. However, it’s been a tough year for the stock market overall.

Still, the ETF is looking toward a better future. OWNS seeks to generate income for investors while also serving a social mission of reducing the racial-wealth gap by creating homeownership opportunities for minority communities as well as supporting the growth of affordable housing generally. 

“Impact Shares partners with leading social and environmental advocacy organizations to basically translate their missions into investable products,” said Marvin Owens, chief engagement officer at Impact Shares and former NAACP senior director “The goal is really to bring these important advocacy voices to the table as it relates to racial justice or gender equity or environmental justice.”

Among Impact Shares’ partners are the NAACP, the YWCA, the United Nations Capital Development Fund and more, according to Owens. He said the focus of Impact Shares is to give investors the opportunity to direct their capital toward causes they hold dear.

“Every day we face the challenge of trying to grow assets under management to the point where these funds [including the OWNS ETF] are not just seen as sort of unique boutique products, but also are able to truly make the impact that we want to have,” Owens said. “Thankfully, we are partnering with groups that have been advocates on these issues for 100-plus years, and we are really taking our lead from them in terms of the corporate efficacy, so it’s been it’s been a good ride.”

The lack of affordable housing affects people across the board — particularly when interest rates are rising as they are now. “But it hits and impacts people of color — Black, Latino and low-income families — even harder because of the broader economic conditions that they have to deal with,” Owens said.

Today, the gap in homeownership rates between Black and white families, for example, is greater than when it was still legal to not sell a home to someone because of skin color — a discriminatory act made illegal by the 1968 Fair Housing Act.

In 1960, a 27-point gap existed between Black and white homeownership. As of the end of the second quarter of this year, according to data from the Federal Reserve Bank of St. Louis, that gap was 29.3 points — with the white homeownership rate at 74.6%; the African American homeownership rate at 45.3% and the Latino homeownership rate at 48.3%.

“When you are able to create more avenues for affordability, you then open the door to access, and access is really the big key,” Owens said. “We can’t close the racial-wealth gap and [expand] homeownership without access.”

The OWN ETF’s subadvisor, CCM, has been managing assets for banks since 1999 in the wake of updates to the Community Reinvestment Act (CRA) — which was enacted in 1977 to eliminate racial discrimination via redlining and then revised in the late 1990s to include investments. 

“OWNS is the culmination of our focus on addressing the racial-wealth gap,” said Alyssa Greenspan, president and chief operating officer of CCM. “CCM has invested over $3.9 billion in minority communities since our inception, including what we believe to be the first MBS pool consisting solely of women-led minority families in 2018.  

“OWNS enables all types of investors the opportunity to focus on affordable homeownership to help reduce the wealth-gap issue.” 

David Sand, chief impact strategist at CCM, added that the online real estate platform Redfin was asked to calculate the estimated values of homes linked to MBS in the OWNS portfolio to create some metrics on wealth creation.

“Based on OWNS’s current holdings, the loans have generated an average wealth effect of approximately $44,000 per mortgage over the length of each loan’s investment period through August 3, 2022.” Sand said. “This compares to a median family wealth of $36,100 for Hispanic Americans and $24,100 for Black Americans.”

OWNS allows qualified investors to direct their capital toward a specific geography, “creating customizable local impact within the ETF,” according to Impact Shares. This allows banks to receive investment-test consideration on their CRA exams and also assists other investors, including pension funds, government entities and foundations, to achieve positive, localized social impact.

“Affordable housing is a core component of community development efforts,” said Dan Rollins, chairman and CEO of BancorpSouth. “We are proud to be invested in this innovative financial solution that looks to address the nation’s ongoing need for affordable homeownership for LMI and minority borrowers, while also meeting our CRA needs.”

Among the largest barriers to wealth creation for minorities and Black Americans, Owens added, “is the lack of inherited wealth.” 

“Providing affordable housing to minority Americans is a crucial step in helping to address the widening racial-wealth gap and catalyzing economic growth in LMI communities,” he said.

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