Sunday, January 10, 2010
More and more finance gurus are socially responsible citizens by investing in SRI stocks. According to the most recent Social Investment Forum report, SRI assets grew to $2.71 trillion by the end of 2007. SRI funds constituted eleven percent of the $25.1 trillion total assets under management in the U.S., and the number of socially or environmentally screened funds had reached 260. Despite economic meltdown, the latest data shows that SRI funds are far outperforming less responsible stock portfolios. In this market, there is ample opportunity for investors to scoop up small and mid cap companies with low price book ratios and large free cash flow yields that are gunning for long term sustainability over short-term growth.
Appleseed Fund, the best performing socially responsible fund according to Morningstar, decreased only 18% last year (versus a 37% drop in the S&P 500) by steering clear of large-cap banks and focusing on small caps that have appreciated with the market. The value based funds screens tobacco, weapons, alcohol and gaming stocks, but its portfolio is anything but limited. Appleseed looks for companies with strong environmental performance, community development, and a clean human rights record, in addition to good management and sound financials. They set themselves apart from other SRI funds by analyzing downside risk from a value driven perspective.
One stock Appleseed recommends is John B. Sanfilippo, a nut producer. The sustainable stock is not only trading at .5 times its book value with a 20% plus free cash flow yield, but is also a healthy source of protein. An outstanding choice from a value perspective, and the carbon footprint of producing nuts is far less than that of beef or chicken. Another stock is The Female Health Company, the maker of female condoms. Growing units at a 20-25% clip, great free cash flow. The majority of their products are sold in the developing world to NGO’s and government agencies to stop unwanted pregnancies and curb exorbitant HIV rates in places like Zimbabwe. Pfizer and Schering-Plough are two large cap pharmaceutical stocks that Appleseed represents. Both have received backlash from politicians for being greedy. But the companies are also manufacturing drugs that cure diseases and ultimately save lives. Pfizer even gets 25% of its energy from renewable sources.
Although most SRI funds are generally more growth oriented, value investing is a great methodology to rely on financial indicators rather than market forecasts, especially in this volatile investment climate.
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Posted by Johanna Hoopes at 9:55 PM