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July 31, 2003
A High Flyer and a Smooth Sailer Top SRI Equity Funds
    by William Baue

Two socially responsible investment equity funds place in the first and second percentiles of their peer funds over a five-year period.


The Winslow Green Growth Fund (ticker: WGGFX) and the Parnassus Equity Income (PRBLX) crown the list of top-performing socially responsible investment (SRI) equity funds tracked by SocialFunds.com for one-year and five-year performance. The Winslow fund has soared highest of all SRI funds during these periods, but it also plummeted in the intervening years. Parnassus, on the other hand, has remained more even-keeled, avoiding the troughs but also missing the peaks.

"One element that is important for the consistency of the Equity Income Fund is that dividend-paying stocks don't have as many ups and downs as non-dividend paying stocks," said Jerry Dodson, founder and president of Parnassus Investments. The fund's prospectus stipulates that 80 percent of the stocks in the fund have to pay interest or a dividend.

All the data in this article was provided by Thomson Financial Network and is current as of June 30, 2003.

The Parnassus Equity Income Fund Parnassus was the second best-performing SRI equity funds tracked by SocialFunds.com over the past year, generating returns of 9.39 percent. The fund placed in the eighth percentile, meaning that it outperformed 92 percent of its peer funds, both SRI and non-SRI alike. It also placed second in five-year performance with annualized returns of 10.26 percent, placing it in the second percentile. The fund's three-year annualized performance was 3.02 percent.

Mr. Dodson explained his relatively simple strategy of avoiding the downturn of the bear market.

"The fund wasn't fully invested during the bad years of late 2000 through 2002, but instead had substantial cash reserves," Mr. Dodson told SocialFunds.com. "When we think stocks are overvalued, we don't hold them just to be investing; we'll hold cash until we find a better value."

Mr. Dodson is employing this same tactic again now.

About half of the fund's assets are currently in cash, as we expect the market as a whole to decline sharply starting right about now, lasting through early November," said Mr. Dodson. "We don't expect the dividend-paying stocks, and especially pharmaceuticals, to go down as much as, say, technology or telecommunications, which we think will take a terrible hit."

The fund's top three holdings are all pharmaceutical companies: Johnson & Johnson (JNJ), Merck (MRK), and Pfizer (PFE).

Winslow has concentrated its investments in smaller health-related companies, which are more able to grow in a weak economy. This belief has fueled spectacular performance for Winslow's Green Growth Fund, which generated year-to-date returns of 52.86 percent. Winslow is the top-performing equity fund tracked by SocialFunds.com over both the one- and five-year returns, placing in the first percentile amongst its SRI and non-SRI peers for both periods. The fund generated one-year returns of 21.10 percent, and five-year annualized returns of 15.74 percent. However, the fund slumped over the three-year period, falling -10.87 percent on an annualized basis.

"Our 3-year performance was negatively impacted by a decision to overweight alternative energy stocks," said Matt Patsky, portfolio manager at Winslow Management Company. "We believed that increased Middle East tension combined with higher oil prices would push the current administration toward a policy that supported the development of alternative energy."

"Not in our wildest imaginations could we have predicted the Bush administration's response: secure the second largest oil reserves in the world," Mr. Patsky told SocialFunds.com.

After dumping alternative energy stocks in November 2002, the fund bought up companies in the healthy living sector. The top three holdings include Polymedica (PLMD), Atherogenics (AGIX), and Conceptus (CPTS).

Some investors have questioned whether Polymedica, a leading provider of diabetes medications and supplies, should be considered a socially responsible company due to lawsuits pending against it regarding Medicare fraud. Ironically, this is exactly what prompted Winslow to buy Polymedica when the share price fell after the FBI announced it was investigating accusations of Medicare fraud.

"What the controversy did was create an incredible buying opportunity," said Mr. Patsky. "In our review of the company, we have found nothing to corroborate that there was indeed any attempt to defraud Medicare, and the allegations to us seem false," said Mr. Patsky.

"If Polymedica were found guilty of Medicare fraud, we would not continue to hold the stock," added Mr. Patsky. "However, we do not believe this is the likely outcome of the current investigation."

 

 
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