May 24, 2007
Innovative Fund Looks to Johnny Appleseed for Inspiration
by Anne Moore Odell
The Appleseed Fund offers social investors a fresh venue for investing in undervalued companies
selected for their social and environmental records.
Launched December 2006, the Appleseed Fund (APPLX) was named after Johnny Appleseed, the visionary
environmentalist and entrepreneur. The Appleseed Fund’s portfolio managers are guided by four
principles: disciplined value investing, socially responsible investing, low shareholder expenses,
and portfolio manger ownership.
Headquartered in Chicago, the Fund considers a
company’s environmental record, labor issues such as sweatshop and child labor, and human rights
record. It does not invest in the tobacco, alcohol, pornography, gambling, or weapons industries.
The Fund’s environmental, social and governance screening is done both in-house and using third
party research data. The Fund is a participant in the Social Investment Forum’s “1% or
More in Community Investing” campaign.
Pekin Singer Strauss Asset Management, a Chicago-based
investment advisor founded in 1990, advises the Fund. Although the Appleseed Fund is less than six
months old, its five portfolio mangers have nearly 100 years of combined experience as value
investors. They worked almost two years developing the Fund before its launch. Pekin Singer Strauss
Asset Management currently has $450 million of assets under management.
Portfolio Manager of the Appleseed Fund, told Socialfunds.com, “Our firm is without a doubt a
family business. Billy Pekin is the son of two of the firm’s founders, Joanne Pekin and Shelley
Pekin, while Joshua Strauss and I are both sons of Ronald Strauss, another partner in the firm. The
three families have been close for over three decades, so we work in an environment where
communication is very open; the best ideas we have generally surface to the top.”
is trying to carve out a niche in the SRI mutual fund field by investing in screened companies that
are out of favor, under-followed and/or undervalued. The portfolio managers will only invest with a
company if their research indicates the company’s intrinsic value is at least 50% greater than
their purchase price. Set up without any capitalization restrictions, the Fund holds mega-cap
stocks like Johnson & Johnson (JNJ) and micro-cap stocks like the Female Health Company (FHCO).
Strauss explained why Appleseed Funds holds John B. Sanfilippo & Son, Inc (JBSS), owner of
the Fisher Nuts brand and the largest nut producer in the United States: “From a social
perspective, the company represents a good value due to the products they make; nuts are a high
quality source of vegetarian protein, and researchers have found that people who eat nuts regularly
have lower risks of heart disease.”
“From a financial perspective, the company represents
a good investment value because, as commodity costs for nuts continue to moderate and the company
moves its operations into a more efficient manufacturing facility, we believe the company’s gross
margins could double from FY 06 levels. Today the company is trading at a price below tangible book
value and below our estimate of liquidation value," he added.
The Fund has worked to keep
fees competitive with other actively managed SRI equity funds. With only 15-20 portfolio companies,
the Fund plans to hold onto an investment for four years, limiting the transaction costs,
reinvestment risk, and the tax burden of the Fund’s shareholders. The Fund is a no-load mutual fund
and has waived management fees through December 2008 to keep the Fund’s net expense ratio at 0.90%
to minimize the performance drag that fees can have on returns.
Another important aspect
of the Fund is that its five portfolio managers are also co-shareholders in the Fund with
collective investments representing about 20% of the Fund’s total assets. “By eating our own
cooking, so to speak, we think our interests will be better aligned with outside shareholders’
interests,” said Strauss.
The Appleseed Fund has generated a 4.7% return through the first
quarter of 2007, compared with the S&P 500 Index’s 0.7% total return during that same period.
According to Morningstar, the Appleseed Fund’s year-to-date return as of May 22 is 10.67%. It
currently has $5 million in net assets.
The minimum invest in the Fund is $2,000. It can
be set up for tax-sheltered retirement plans with minimum IRA invest of $1,000.