 Fund Profile: Portfolio 21
by Ann C. Logue
If gas prices weren't so darn high right now, we'd probably be right on track for a backlash against all things green. Between the dirty looks at the grocery store for choosing plastic over paper (I'll reuse the plastic bag! And it took more petrochemicals to get that paper bag from Idaho to Chicago!) and the confusing claims (are compact fluorescent lights good because they save electricity and last a long time, or bad because they have mercury?), it's a wonder we all don't just chuck it and tool around in our Hummers wearing fur coats.
Ah, but there are those sticky problems of flooding in the Midwest, drought in Africa and premium gas at $4.57 per gallon at the service station around the corner from me. No matter how exhausted we may be with the debate about organic versus local milk, concern about the environment is likely to persist for some time. If you want to profit from increased attention to all matters planetary, you might consider Portfolio 21, a mutual fund that specializes in companies that have environmentally responsible business practices. Portfolio 21 has only one mutual fund, this stock fund; the company, founded as Progressive Investment Management in 1987, also has an institutional class of shares and a money management service for pensions, foundations and rich people who are interested in environmental investing.
Portfolio 21's website contains detailed information about the firm's investment process, including information on companies in the portfolio, companies that it chose not to invest in, and companies that were sold. It's an interesting twist; so many portfolio managers demand transparency from the companies that they invest in (and rightly so), but they are less interested in being transparent about their own activities. The largest holding in the fund is Novartis (NYSE: NVS), a Swiss drug company that has been in a leader in managing pharmaceutical chemical issue in waterways. It makes up 3.1% of assets. The second-place holding, at 2.7% of assets, is Novo Nordisk (NYSE: NVO), a Danish pharmaceutical company committed to sustainable business practices. In third position, at 2.4% of assets, is Nokia (NYSE: NOK), the Finnish maker of mobile phones that incorporates reusable and sustainable materials into its designs. The fund keeps 34.29% of assets in the United States, 9.76% in Japan and 8.95% in Sweden.
People are attracted to social investing by the prospect of "doing well while doing good." Contrary to myth, the social investor doesn't have to sacrifice performance when investing according to ideals. Pension funds, which have to be conscious of performance, have been doing it for years. But it's not easy, either. Portfolio 21's performance is okay, not great. For the year-to-date, it's down 5.49%, which is better than the 9.13% decline in the benchmark Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) index. For the last five years, though, Portfolio 21 had an average annual return of 13.67% while EAFE had an average return of 16.39%. Nevertheless, the fund is competitive with its category; the average World Stock fund in Morningstar's universe has a five-year average annual return of 13.49%.
The fund has a 1.52% expense ratio after a 0.07% rebate from the management company. This is a bit on the high side, although Portfolio 21's research is intense. Time and attention isn't cheap, and it includes a lot of time spent with company managers to encourage them to change their businesses to accommodate the fund's requirements. The fund has $265 million in assets, which is relatively small and makes fixed costs come in at a high percentage of assets. The expense ratio also includes a 0.25% 12b-1 fee. The fund is sold directly with no load, although there's a 2% redemption fee on any withdrawals made within 60 days of the investment.
Portfolio 21 has average performance and a unique investing style. As the fund gains assets, its expenses should come down a bit as a percentage of the total, which would help performance. And, as more companies change their business practices to reflect the limits of water and energy supplies, the fund's managers should find more companies to invest in. One could do a lot worse, both financially and socially.
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