This fund's unique approach to socially responsible investing
focuses on companies that provide a comfortable work environment,
betting that happy employees work harder and lay a foundation for
success. Say what you will about this logic, management's
strategy of buying names that offer superior growth prospects at
a discount continues to pay off.
In his most recent quarterly commentary, manager Jerome Dodson
) "began as an experiment over four years ago to see if companies
with good workplaces could have superior stock-market returns." The
logic underpinning this test is elegant in its simplicity: A
company that treats its employees with respect and fosters a
supportive work environment should outperform average businesses
because its team members will work harder and more
What makes for a good workplace? Dodson and his team make this
judgment based on factors such as respect for and fair treatment of
employees, equitable pay and benefits, family-friendly policies,
and support for volunteerism and charitable contributions to the
community. Management also consults outside sources when necessary,
including the Great Place to Work Institute and annual surveys
. Milton Moskowitz, coauthor of
"100 Best Companies to Work For," advises the fund on these
To date, Dodson's experiment has paid off handsomely for
shareholders. The fund weathered the financial crisis and market
selloff better than most, losing just 29.9 percent in 2008, and
chalked up an extraordinary 62.2 percent gain in last year's
extended rally. This substantial outperformance places the fund in
the top 1 percent of
Large Growth category and has landed it in The Rukeyser 100 for the
past seven months. Unlike many funds, Parnassus Workplace has
erased all of the losses incurred since the bear market took hold
That being said, we wouldn't necessarily describe the fund's track
record as proof of concept; the fund's romantic conceit about
"exceptional workplaces," no matter how appealing, wouldn't stand
up without Dodson's stock-picking acumen and the rigorous research
that undergirds all of Parnassus Investments' offerings. Remember,
plenty of Internet startups that were great places to work failed
in the wake of the tech boom.
Social responsibility aside, Parnassus Workplace's solid
performance in both up and down markets validates Dodson's strategy
of buying undervalued companies that are growing at a faster rate
than the rest of the economy. These names are typically industry
leaders with secular growth opportunities, competitive advantages,
solid returns, healthy balance sheets and quality management.
Although the fund can invest in companies of any size, the majority
of its holdings are large-cap or blue-chip stocks.
Top-down analysis enables management to identify key growth
trends that are sometimes lost in the shuffle, while close scrutiny
of individual companies ferrets out the names that are best
positioned to benefit.
This approach yields cyclical names such as chipmaker Intel (
), which should reap the rewards of an anticipated wave of computer
upgrades now that Microsoft's (
) Windows 7 operating system has launched.
At the same time, Dodson is also bullish on Qualcomm (
), an attractive play on the rising popularity of smart phones
across the globe. Not only does Qualcomm provide integrated
circuits and software solutions--the guts of some of the most
popular smart phones--to top wireless handset manufacturers but its
patents on key technologies mean that the firm receives royalties
from the sale of 3G-enabled phones.
Outside the technology space, the fund holds a sizeable position
in Deere & Company (
), the agricultural equipment company that boasts an almost 50
percent share of the North American market and should benefit over
the long term from rising demand in China and India.
Tennessee-based regional bank First Horizon National Corp (
) enjoys an enviable capital position and continues to reduce
problem credits aggressively. The bank is further along in its
turnaround than many of its peers in the South and stands to
increase its share in its local market.
Although Dodson's value approach should limit losses in
pullbacks and position the fund for future success, return-chasing
investors shouldn't expect the eye-popping gains the fund generated
last year. The violent selloff of 2008 and subsequent rally in 2009
were anomalous occurrences set in motion by extreme circumstances;
selectivity will be the key to success going forward.
At the same time, prospective investors shouldn't be scared away
by the fund's relatively short track record. The founder, president
and CEO of Parnassus Investments, Dodson has achieved similarly
impressive results at firm's marquee fund, Parnassus (
), which he's piloted since 1984.