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Parnassus: Investing with "Values"
04/19/2016 9:00 am EST
Mid caps in general have been good bets over the long term. Like small-cap stocks, they have outperformed large caps over many periods. However, they have done so with less volatility than their smaller siblings, explains Mark Salzinger, editor of The No-Load Fund Investor.
Parnassus Mid Cap Fund (PARMX) has built outstanding records on all its US equity funds, investing in growth stocks that meet its requirements for durable profitability and “ESG” factors — environmental, social and governance.
Parnassus’ ESG screens explicitly serve investors who are interested in a socially conscious fund, but they also inform its portfolio managers’ search for companies that will have what they call “relevancy over the long term.”
They believe that companies that fail ESG tests are inherently riskier than those that do not, owing to potential liabilities or unsustainable products and practices.
Aside from ESG screens, Parnassus Mid Cap favors mid-size companies with “moats” around their businesses — that is, competitive advantages that help protect market share and profits.
The fund employs a three-year investment horizon; they establish an estimate of the stock’s intrinsic value and will buy only if its share price is below that level.
The resulting 40-stock portfolio is currently has an overweight position in industrials and is significantly underweight in financials and consumer discretionary stocks.
Unlike some other ESG-based funds, Parnassus Mid Cap does have exposure to energy stocks (recently 4% of the portfolio), primarily companies whose products and services are designed to make drilling safer and less costly.
Managers Matthew Gershuny and Lori Keith have run Parnassus Mid Cap since October 2008, and their record is solid.
Over the past five years, the fund has matched the 10.1% annualized gain of the Russell Midcap Index, but with volatility that has been 13% less severe.
By Mark Salzinger, Editor of The No-Load Fund Investor
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