March 16, 2006
A Serendipitous Match: Davis Advisors Takes Over MMA Praxis Core Stock Fund
by Bill Baue
The portfolio holding of Wal-Mart exemplifies (oddly enough) how both Davis Advisors and MMA Praxis
emphasize the importance of stewardship and shareowner empowerment.
At the turn of the new year, socially responsible investing (SRI) firm MMA Praxis handed off management of
its Core Stock Fund (ticker: MMPAX) from its in-house team
to Davis Advisors, a money manager known
for championing shareowners. The transition, which concluded a search process that began in early
2005, put the portfolio management reins in the hands of Davis CEO Chris Davis and Ken Feinberg,
who are esteemed for generating strong long-term returns.
"As a proponent of stock
ownership as the prudent way to invest, versus stock trading, MMA was drawn to Davis
Advisors' sensible, long-term focused investment approach that has provided consistent performance
through several full-market cycles," said Chad Horning, equity investment manager at MMA Praxis and
former Core Stock Fund portfolio manager. "Another item that played an important part in MMA's
decision was that Davis Advisors has been consistently recognized for its careful attention to
acting in the best interests of all of its shareholders."
"They have been one of very few
managers to receive Morningstars highest stewardship grades since the fund evaluation organization
began rating this aspect of investment management firms," Mr. Horning told SocialFunds.com.
"Months after MMA made the decision to hire Davis Advisors for the mandate, and on the very day
they took over the Praxis Core Stock Fund, we were gratified to see that Morningstar announced Chris Davis
and Ken Feinberg as their US Domestic Managers of the Year."
Fund rater Morningstar has not taken as sympathetic a view of the MMA
Praxis Core Stock Fund,
downgrading it from a three- to a two-star rating (out of five) in May 2005. The fund's
financial performance has been sluggish, with three-year annualized returns of 11.77 percent
placing the fund in the 91st percentile, meaning it outperformed only nine percent of its peer
funds (both SRI and non-SRI). Its five-year annualized returns of 0.88 percent place it in the
58th percentile, meaning it almost reached the median of financial performance amongst its peers
for the period ended February 28, 2006, according to data provided by Thomson Financial Network.
Time will tell if Davis' investment philosophy can turn around the fund's financial
"As long-term investors who view stocks as fractional ownership in real
businesses, we focus a great deal on shareholder friendliness and the overall adherence to
principles of stewardship by corporations," said Peter Sackmann, Davis' director of institutional
services, explaining the firm's philosophy. "We look for owner-operators who treat shareholders as
This approach complements that of MMA Praxis, the fund management arm of
the Anabaptist denominations, which will continue to administer the fund's SRI activities
(including screening, shareowner advocacy, proxy voting, and community development investing.)
"With respect to SRI, MMA sought a manager who not only would manage the fund to MMA Praxis'
unique specifications, but who also would ideally have a personal interest in MMA Praxis'
mission--after in-depth conversations with Chris Davis and his colleagues, together we discovered
that the partnership was a serendipitous match," said Mr. Horning. "Also, as part of the due
diligence Davis Advisors performed on MMA as an institution before even considering a response to a
request for proposal, they estimated the hypothetical impact of MMA Praxis' screens on Davis'
"Having conducted an analysis of MMA Praxis' screens on our
historical portfolios, we do not believe that MMA Praxis' particular SRI constraints should
constitute a material hindrance to our ability to manage the Core Stock Fund," Mr. Sackmann told
While the mandate of the Core Stock Fund remains unchanged, Davis has shifted
the portfolio holdings into "those businesses in which we have the highest conviction as a firm and
in which we feel we have a particularly deep knowledge," according to Mr. Sackmann. The fund's top
five holdings include
American Express (AXP), American International Group
(AIG), Costco (COST), JPMorgan
Chase (JPM), and
The portfolio also holds Wal-Mart (WMT), a company screened by most
SRI firms for its unsustainable business model and for treating shareowners as adversaries. This
case illuminates a distinction between traditional SRI and MMA Praxis' Stewardship Investing
approach. Whereas traditional SRI seeks to align with the values of individual investors,
Stewardship Investing seeks to advance a greater good taking into account all stakeholders impacted
by investment-- from company employees to suppliers to customers to communities to the environment.
"Indeed, we see our investment in Wal-Mart as a critical example of 'praxis'--putting
beliefs into action," said Mark Regier, MMA Praxis' stewardship investing services manager, who
wrote a long explanation of the
MMA Praxis' Wal-Mart decision. "To invest without engagement--given Wal-Mart's list of
challenges--would not be appropriate."
"To divest would seem to turn our backs on the
millions that are affected by this corporate giant," Mr. Regier told SocialFunds.com. "In some
ways, I guess you could say we stay invested in Wal-Mart for some of the same reasons other
socially responsible investors have gotten out--because there are issues at Wal-Mart that are
simply too important to ignore."
Mr. Regier points out that the company has been
sufficiently responsive to shareholders. In February 2005, Wal-Mart CEO Lee Scott met 60
shareowners (including MMA Praxis) who are members of the Interfaith Center on Corporate
Responsibility (ICCR), a coalition of 275
faith-based institutional investors to discuss the sustainability of the company's business model.
The company has also agreed to issue its first ever sustainability report in 2007 in response to
an ICCR shareowner resolution co-filed by MMA Praxis.
On a final note, the portfolio
manager change affected not only the MMA Praxis Core Stock Fund, but also the Meritas US Equity Fund, a nearly
identical portfolio (with a few minor differences in holdings) that MMA Praxis managed for its
partner in the Canadian market.
"It only made sense to simultaneously replace the
manager for these portfolios, which will continue to mirror one another, with a few exceptions,
under Davis' management," MMA Praxis President John Liechty told SocialFunds.com.