Day: October 24, 2016

The Times, They Are A-Changin’

Bob Dylan, 1964

Please note, this market commentary is from October 2016 and does not apply to current market conditions.

Is Dylan literature?  Yes says the Nobel Committee and I hardily agree.   If you are a stickler for the term “literature”, Dylan would at least qualify as a poet.  But it is fair to say that the lines around what is and what is not literature have certainly been blurred.  As an aside, The Wall Street Journal reports that Gordon Ball, an English professor at Washington & Lee, was first in submitting Dylan’s name to the committee, some twenty years ago.

But back on point, this blog post is about investing, not literature, although I’m sure Barron’s weekly investing magazine would claim with their long history that they qualify to use the term “investment literature”.  Twelve years ago a client of ours objected to a particular company that was owned by a mutual fund within her portfolio.  She complained to me and wrote letters to the mutual fund company.  And while I procrastinated at first, I finally did a study of what are now called ESG (environmental, social governance factors) oriented funds.  At the time, there were not many professed ESG funds out there and the ones that were did not meet our criteria for returns or risk mitigation.  The best we could do was give our client the choice of keeping the offensive fund or standing by her convictions with the possibility of lower returns.  While she kept the offensive, but more lucrative fund, her objections, along with others over the years have not gone unheeded.

Barron’s just published their first study of sustainable funds, also known as SRI funds.  The terminology gets a little confusing, but SRI stands for socially responsible investing, synonymous with ESG.  More funds are adopting the sustainability mantra, not just because it feels good or their investors are demanding it, but because companies whose managements recognize having less environmental issues and better corporate “manners” tend to have inherently healthier and larger profit margins.  This leads to more sustainable corporate longevity, allowing funds to hold these investments longer, decreasing turnover and thereby enhancing tax efficiency.

One fund company rated high on Barron’s list is Parnassus. Longview’s investing team uses risk mitigation, return, tax efficiency, cost and many times, non-correlation as primary factors in choosing investments.  The Parnassus funds are a large holding in many of our portfolios because of these factors.  In the last twelve years, sustainability has become another primary factor to add to our list.  While the criteria of SRI varies greatly, generally funds that are using these methods are doing very well by doing good.  Yes, the times, they are a-changin’!


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