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June 13, 2003
Two Environmental SRI Funds Generate Attractive Returns
    by William Baue

In the midst of a stagnant economy, two SRI funds that invest in environmental best performers have generated year-to-date returns in the 20- to 35-percent range.


Last year, investors grew accustomed to seeing a negative sign in front of mutual fund return numbers. This year, most socially responsible investment (SRI) mutual funds tracked by SocialFunds.com are generating positive returns. Two SRI funds focused on environmental screening, the Green Century Balanced Fund (ticker: GCBLX) and the Winslow Green Growth Fund (WGGFX), are even reporting double-digit earnings. These funds have identified companies that are managing to grow in a stagnant economy. All numbers cited in this article are provided by the Thomson Financial Network, and are current as of May 31, 2003.

Year-to-date returns for the Green Century Balanced Fund amount to 22.81 percent, placing it in the first percentile of its peer funds. In other words, it has outperformed 99 percent of other comparable balanced mutual funds (not just those in the SRI market.) Also in the first percentile amongst its peers is the Winslow Green Growth Fund, which has performed even better, with a year-to-date return of 33.56 percent.

It may not surprise readers that the two funds are intimately linked. Jack Robinson of Winslow Management Company serves as the portfolio manager for both funds. The equities held in both funds are essentially the same, though the Green Century product, since it is a balanced fund, has a minimum of 25 percent of its assets in bonds. The allocation to bonds helps insulate Green Century from the higher peaks and lower valleys of pure equity fund such as Winslow's.

"We had a bad year last year, and at the end of the third last September/October, we did a thorough review of what was working for us and what wasn't," Mr. Robinson told SocialFunds.com. "In the fourth quarter, we did some serious weeding, and we refocused the proceeds on companies we were convinced could grow in a no-growth environment."

"These companies became larger holdings, and we also added some new holdings" he said. "The reason the portfolios are performing so well this year is because of this reallocation of fund assets."

The funds' top three holdings are all health-related companies with names that many investors may not recognize: AtheroGenics (AGIX), PolyMedica (PLMD), and Conceptus (CPTS).

"AtheroGenics, which has a new drug for reducing atherosclerosis [inflammation caused by cholesterol] in the final stage of Food and Drug Administration approval, has the best internal environmental procedures of any biotech company," Mr. Robinson explained.

"PolyMedica, which is very profitable and growing, primarily services the diabetes market by selling glucose strips for testing blood sugar levels, and they help senior citizens totally with reimbursement, so it's basically a pass-through," said Mr. Robinson.

"Conceptus is a very exciting new company that has developed an intrauterine device for birth control called Essure, a cheaper, better, faster procedure for women seeking to be sterilized," he said. "Population control, from our perspective, is very much a green and environmental issue."

Green Century Capital Management, which administers the Green Century Balanced Fund, is wholly owned by non-profit environmental advocacy organizations. Company profits are donated back to these groups.

This focus on environmental best performers veers the investment universe toward small-cap growth companies that tend not to be covered by SRI research firms such as Innovest and KLD Research & Analytics. Winslow and Green Century thus do their own environmental research in-house. They divide the world of possible investments into three categories: the "greens" (or companies with environmentally beneficial products or services), the "cleans" (environmentally benign products or services), and the "dirties" (environmentally destructive).

Mr. Robinson identified Conceptus as a "green" company, and the other two as "clean" companies. All three companies demonstrate how the search for environmental best performers also tends to identify companies that operate in socially responsible and beneficial ways.

"When we do our environmental screens, we also pay close attention to corporate governance and social issues," said Mr. Robinson. "There is a strong correlation between companies that are environmentally responsible and those that are socially responsible--it's a corporate culture."

 

 
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