Saturday, August 15, 2009

Values Based Investing - What Is It?

I recently had breakfast with my friend, Alexis Carroll, to discuss at least one bright spot in what has been a challenging investment environment over the last twelve months. Lex is a paid consultant for Eventide Asset Management, a values-based investment firm with a mutual fund, the Eventide Gilead Fund (NASDAQ: ETGLX), which was the best performing midcap core fund for the twelve months ending June 30th 2009. Since I enjoy learning new things, I asked him about the fund, its philosophy and the future for this type of investing. (Disclaimer: Neither party has received financial consideration for this interview.)

Al: Based on what you have already told me, it seems like this has been an extraordinary year for a young mutual fund. Tell me what Eventide accomplished?

Lex: Eventide's first mutual fund, the Eventide Gilead Fund, completed its first year in July 2009 as the #1 performing fund according to Lipper out of 359 funds within the mid-cap core category. In doing so, it beat the S&P 500 index by 25%. It was also named a "Category King" four times in 2009 by the Wall Street Journal in recognition of ranking within the top ten funds in its category for year-to-date performance. It has consistently been in the top decile since inception for both Lipper and Morningstar rankings.

Al: That's tremendous. From what you said earlier in our conversation, I understand this fund is different than the typical mutual fund. What exactly is values-based investing?

Lex: It's a sub-set of socially responsible investing, SRI, an area that has grown 3,500% to approximately $10 billion in mutual fund assets over the last ten years, depending on who you ask. However, compared to the overall domestic mutual fund industry size of approximately $9.4 trillion, the market penetration of this type of investing remains small. Values-based investing takes a faith-based approach for how to think about money and its uses, with responsible stewardship of one's resources as a primary theme. While several denominational-oriented mutual funds exist to provide an investing outlet to Catholics, Baptists, etc., Eventide attempts to appeal to the broadest possible market. Interestingly, the majority of faith-based funds in America today are Islamic.

Al: So could a personal example of my choosing to implement thoughtful stewardship of my finances include the decision to purchase a Honda instead of a Porsche?

Lex: (laughter) In a way. But this isn't the “what would Jesus drive?” question, but it's related. There's nothing inherently evil about driving a Porsche. However, people are increasingly asking whether they want to include companies in their portfolio that profit from tobacco, pornography, gambling, etc. SRI often reflects this view from a secular perspective (not harming the environment, etc), while values-based stewardship is informed by faith for Eventide and treats investing as an extension of religious convictions. Its premise is that the way in which profits are produced is also important.

Al: Then how does Eventide implement values-based investing?

Lex: Eventide seeks to appeal to investors who desire investing in both socially and religiously responsible ways, yet still expect attractive returns. In no way does the investment philosophy de-emphasize its pursuit of alpha. On the contrary, Eventide believes that this style of investing will capture corporate value creation more effectively than a laissez-faire approach to how profit is produced. For instance, one thing that sets Eventide apart from other values-based funds is that it goes beyond the negative-only screening out of those companies with products or activities that it considers do not add value to society. More so, it proactively invests in companies that it believes operate with integrity and add value to customers, employees and the world. They ask the deep and thoughtful questions about business practices to find companies that are successful, admirable and sustainable.

Al: It sounds a bit qualitative. In an era of high-frequency computer trading, can this translate into a rigorous analytical approach?

Lex: Absolutely. Eventide's portfolio manager is a M.D./Ph.D who utilizes a system dubbed “Masters' Select” which is a data-driven overlay to the values platform. Without boring your readers with technical details, let me say simply that it essentially identifies the best analysts and managers and aggregates their collective insights to make stock selections. From 1996 through 2003, this approach generated outstanding performance in both bear and bull markets.

Al: Considering Eventide's glittering success in its first year, would you say that this is a breakthrough period for values-based investing as a whole?

Lex: We certainly hope so and would like to think that its time has arrived. In the wake of Bernie Madoff, fraudulent and collapsed hedge funds, AIG and the like, there is a burgeoning movement for greater responsibility in fundamental business models and transparency that reflect investor ethics and values. Specifically, over eighty percent of investors have said they would invest in a fund with values compatible with their own, if offered comparable returns. It's also worth noting that the mutual fund industry, with its strong regulation and transparency, has escaped the majority of scandal.

Eventide believes that companies that improve society will be blessed and that values-based investment philosophy is poised for long term success. This is not just wishful thinking, historical data back it up. For example, the Domini 400 socially-responsible index has outperformed the S&P 500 by 0.73% annually over 19 years from 1990-2009.

Al: Considering all this, what plans does Eventide have for the future?

Lex: Eventide has a few unique ideas in the pipeline, yet faces similar capital constraints in launching these products as other businesses in this economy. It still expects to roll out some of these products in 2009.

Al: How can readers of The White Rhino Report find out more about this investment style and Eventide?

Lex: They can go to or they can contact Eventide's CFO, Robin John at

Al: Thank you for sharing these insights and for helping to educate me - and my readers.

Lex: My pleasure. Thank you for asking.

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