I am that most annoying of people, a convert. You know the type; after thirty years of acting in a certain way they now find their previous behavior abhorrent and run around telling everybody that they are doing things wrong. They alienate the people they once saw as friends, but are not fully accepted by the new crowd. After all, what took this newcomer so long to see the light? In my case this isn’t a religious conversion, nor have I suddenly found baseball, which I guess is the same thing. No, I have developed an appreciation for Values Based Investing (VBI).
In my defense, I should say that my previous sins weren’t my fault. It was the environment I grew up in. Twenty years in the Foreign Exchange market would make anybody a cynic. It wasn’t that we didn’t have broad societal values and goals; it’s just that they had no place in our professional lives. Values based investing struck me as more of a hobby than an investment. The job of my money was not to make the world a better place. The job of my money was to make money. If I wanted to make the world a better place, that was a lot easier with cash in the bank.
VBI is a simple concept. It involves investing only in companies that align with your values, whatever they may be. Some of the best known examples are based on religion, such as the Catholic funds from Ave Maria and Epiphany Funds. Religious funds are not limited to Christianity; the Amana Funds, for example, follow the principles of Islam. There are also options for those whose biggest concern is corporate responsibility and investing in the future of mankind. This is what interests me, for two reasons.
The first is fairly obvious and relevant in the week following Fathers’ Day; I am now a father. Any parent is probably aware that that changes things. I now care more about what my children will have in thirty years than what I will have in five. My horizons have extended. There is an element of Pascal's Wager to this. I am not sure that Global greed is pushing us relentlessly towards a desolate planet, but, just in case, I want my children to at least think I cared.
The second reason for my interest is more practical. Many values based funds work; they outperform the market.
The above chart shows the growth of $10,000 invested in Eventide’s Gilead No Load Fund (ETILX) since inception, as compared to the S&P500 and Russell Midcap Growth Index. As you can see, it has outperformed both significantly. Now this could be purely down to some good fund management or, given the relatively short history of the fund, just dumb luck. I suspect, however, that there is another factor at play.
Market purist types often bemoan the fact that central Governments, in offering tax incentives and subsidies to certain industries, distort the market. I have no doubt that that is true. It is, after all, part of what has made oil companies such great investments over the years. These days, however, Government largesse is more likely to flow to environmentally friendly industries and companies. Local incentives also are more readily available for good corporate citizens. Success, whether for individuals or corporations, is easier when the powerful are invested in you. Whether your political opinions lead you to welcome or despise this, there is no reason you shouldn’t profit from it.
There I go again! The cynic is obviously alive and well in me. I haven’t fully shaken that “profit is king” FX mentality. The simple point is that whatever your motivation, a healthier planet or a healthier balance in your IRA account, values based investing is something that you should consider. If nothing else, the very fact that you considered it is something to tell your kids.