August 03, 2005
Winslow Green Growth Fund: On the Rise Again
by William Baue
Following up on its stellar 2003 performance, the environmentally-focused fund is again
significantly outperforming its peers and benchmark.
The Winslow Green Growth Fund (ticker: WGGFX), a small-cap growth
fund focusing on corporate environmental responsibility that skyrocketed in 2003 with a one-year
return of 91.74 percent before returning to earth in 2004, seems to be heading skyward again.
Returns for this socially responsible investment (SRI) fund were up 9.33 percent in the second
quarter of 2005, almost tripling the 3.23 percent returns of its benchmark, the Russell 2000 Growth Index (which
tracks small-cap growth stocks).
"What's most encouraging is the upward trend the
fund has taken during the past two months," said Jack Robinson, president of Winslow Management Company and lead
portfolio manager of the fund. "The fund was up 16.08 percent in May and 9.86 percent in June,
even though the market as a whole was sluggish."
Winslow attributes the strong second
quarter performance to two portfolio holdings in particular: Durect (DRRX) and Green Mountain Coffee
"Our biggest winner and largest holding in Q2 is Durect, a drug delivery company
specializing in pain therapeutics whose patch product reduces the ability for abuse of opiod
drugs," said Nicolé Keane, Winslow's portfolio assistant. "This holding, which we rate as
'environmentally responsible,' represents 8.5 percent of the portfolio and was up over 39 percent
during the second quarter."
"Green Mountain Coffee Roasters, which we rate 'best in class'
as the majority of all the coffee it sells is Organic, Fair Trade or from small-scale coffee farms,
represents 3.3 percent of the fund and was up over 45 percent in Q2," Ms. Keane told
SocialFunds.com. "Green Mountain understands the sustainability challenges of the industry and is
actively working to address them."
Looking back at a longer time horizon confirms the
fund's strong performance. The Winslow Green Growth Fund's three-year returns are 19.51 percent
(compared to 11.37 percent percent for the benchmark), ranking it in the first percentile compared
to its peers of similar style and asset class. In other words, during this time period it
outperformed 99 percent of domestic small cap growth funds, SRI and non-SRI alike.
fund statistics cited in this article are based on data provided by Thomson Financial Network
covering the period ending June 30, 2005, unless otherwise noted.
Looking at alpha and
beta illuminates fund performance patterns. Alpha measures the degree of fund deviation from
market performance--in other words, fund performance that cannot be explained by market movement
and thus is attributable only to fund management, with positive alpha as a reward and negative
alpha as punishment. Beta measures the degree of volatility, with beta of 1 hugging market swings,
beta under 1 minimizing volatility below the market, and beta above 1 risking volatility beyond the
Winslow's beta runs pretty high--1.44 over the past three years.
style is a concentrated small cap portfolio of no more than 35 to 40 positions, so we will buy
positions of up to five percent and let them run to as much as a ten percent position," said Matt
Patsky, Winslow's co-portfolio manager. "This strategy is inherently more volatile than a broad
market index, hence our high beta."
"We would have to change our overall strategy to
eliminate the volatility," added Mr. Robinson. "The obvious ways around it would be to hold more
positions that are smaller in size, and one of the reasons we don't do so is that to beat the
index, you don't want to look, walk, or talk like the index."
Such risk-taking can pay
"This increased volatility has been rewarded with better-than-market returns over the
long-term," Mr. Patsky told SocialFunds.com.
Indeed, the flip side of Winslow's high
beta is its high alpha of 7.28 over the three-year period.
What accounts for Winslow's
success? Mr. Robinson attributes it in large part to environmental screening.
that environmental screening is all about enhancing profitability and growth," Mr. Robinson told
SocialFunds.com. "We lead with the environmental screens because we can measure environmental risk
and cost and the impact green products have on enhancing revenue growth--and we find that focusing
on these metrics is an excellent way to understand the culture of a company."
"We are very
focused on the positive side of screening, and we break our investment universe into 'greens,'
'cleans,' and 'dirties,'" Mr. Robinson explained. Greens (or companies with environmentally
beneficial products or services) and cleans (or environmentally benign companies) qualify
for investment consideration, while dirties (or companies with negative ecological impacts) are
screened out. "We do do fundamental analysis--just because a company's green doesn't mean
it's necessarily a good investment--so we fully incorporate other investment disciplines, such
monitoring money flows in and out of stocks and determining relative valuations."
Reflecting on the historical development of Winslow's green screens highlights the growth in
corporate environmental responsibility.
"When we first started focusing exclusively on
green investing in 1991, we knew of no more than ten public companies that had a
clearly-identifiable green product or service, and today we've got files on 250," Mr. Robinson
reminisced. He cites the example of Whole Foods (WFMI) to illustrate this growth.
"People wrote it off in 1992 when it went public, and now it has 165 stores nationally and has
outgrown the small-cap category, but we continue to own it in our top ten holdings--to us, it's the
holy grail, an example of a company that's a success story with a green product or service."