SRI,
redux
It might be premature
to talk about a "correction" but there is no question that all
S&P sectors have hit a bump in the road.
Following another week
of critical declines in the averages, it is becoming more and more important to
divert one's attention from the hourly up and down progression of traditional
equity and bond trading. If nothing
else, I urge caution about getting swept up by the negative emotion that comes
about by an obsession over something for which you really have no control.
I've given a lot of
thought and written extensively recently to how investments in socially
responsible companies can divert your focus while also returning value to your
portfolio. It's not an idle exercise.
In recent years,
younger clients and those intent upon addressing the inequities in global
economics have increasingly demanded a spotlight upon strategies that not only
can help to achieve their own financial investment objectives but which also
directly respond to societal needs such as eradicating hunger and poverty, or
developing alternative and renewable energy sources. And it has been a good fit because I have
used my proprietary quantitative tools to explore these very issues since the
last millennium.
More importantly, as
socially motivated investors become more results oriented, the need to create
real portfolio alpha has also become more noteworthy.
The basic problem
during the last 30 years has been that most "green" product offerings
haven't translated into performance for clients. Instead, most of these funds have been
concessionary at best to the factors that really matter in effecting results
for the planet and for clients' grandiose expectations about making money in
those industries.
In fact, because of
shoddy research or too aggressive marketing campaigns, many of the public
offerings in socially responsible funds contain only a few of the companies in
this realm in their overall portfolio.
The largest allocations go instead to corporations that pay lip-service
to socially friendly practices but have a minimal effect upon the mission's
outcome. Purchasing these products in
the past might have been a "feel good" exercise, but has done little
in the way of achieving a desired result...either for one's portfolio or the
planet.
Indeterminable
So why do I feel so
compelled to redouble my efforts in this space?
For one, my research is
neither sector nor capitalization specific.
That's good because we enter this project with no preconceived notions
about what we will find. My goal,
instead, is to isolate publicly traded issues which fall into a "capital
gains projection" grid and whose management and mission has already been
vetted for good will and profits in their chosen endeavor. Only then will I "bunch" these
equities into an appropriate basket and title them by their proper sector. The goal is not to try and fit a square peg
into a round hole but rather to eliminate all "holes" (silos)
altogether at inception.
Without any
predetermined biases we can aggregate the data, then create a macro framework
for portfolio positioning. The devil is
in the micro details, and our experience with quantitative allocations
hopefully allows us to be more effective in achieving both ends of the client's
mission statement.
As with any investment
there is always a risk that early-stage companies cannot keep up with a break
neck pace of production or, worse, that mature companies grow weary of
underperformance in their lower divisions that are not yet mature enough to pay
dividends to shareholders.
Of course, this topic
is, at its core, quite multifaceted. If
you are looking for immediate gratification or less compelling stories you may
not find it in the "future" of mankind. There are intricate, intensive discussions
that have to be had, and which also pose significant unknowns.
A topic not for the
faint of heart.
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