As you know, I am a strong advocate of faith-based investing.   I believe it is essential that individuals invest with their convictions.  Your values should be at the center of your financial plan so why wouldn’t you also want to invest according to your values?

Eventide Gilead Fund continues to use values-based investing as a powerful means of outperformance. In fact, values-based screening–both negative and positive–is one of the five pillars of Eventide’s portfolio strategy for generating alpha. In 2009, this strategy led to a 46.1% return (95th percentile in alpha) while maintaining low volatility and low market correlation. Other components of our portfolio management process include dynamic fundamental analysis, technical analysis, a masters’ select strategy, and CAPM risk mitigation.

There has been considerable research that shows companies focused on creating real value by serving the needs of the customer, employee, and society — instead of profit at all cost perform better in the long term.

1. Research by Fred Reicheld of Bain Consulting concluded that ethically admirable companies have more sustained growth and are, therefore, better long-term investments. This research demonstrates the relationship of business ethics to business success: companies that seek first to create value for their customers rather than seeking profits at all costs are more profitable in the long run. (See the attached document titles Eventide_NPS).

[F. Reicheld, The Ultimate Question. Harvard Business School Press, 2006.]

2. Evidence of how ethics translate into positive financial performance can be seen in the Domini 400 socially-responsible index, which has outperformed the S&P500 by 0.73% annually over approximately 19 years. Launched in May 1990, the Domini 400 is the first benchmark index constructed using environmental, social and governance (ESG) factors. It is a widely recognized benchmark for measuring the impact of social and environmental screening on investment portfolios. The index is designed to reflect the way social investors select companies.Normally, about half the S&P 500 companies (250 stocks) are also constituents in the Domini 400. From May 1, 1990 to March 31, 2009, the Domini 400 has outperformed the S&P 500 by 0.73% annualized (7.74% compared to 7.01%).

3. Another evidence can be seen in the Credit Suisse Most Admired Portfolio, which examines the alpha-generating characteristics of a strategy based on Fortune magazine’s yearly Most Admired Companies list. Fortune has published its Top 10 list of most admired companies annually since 1983. Investing in these companies has offered a performance advantage over the S&P 100 benchmark. The strategy uses the past five Most Admired Companies lists to construct the current portfolio. Companies are assigned 2% of the current portfolio for each appearance in the Top 10 list over the past five years. In dollar terms, the most admired companies strategy produced over twice the return of the S&P 100 from 1983-2009. An investment of $100 in the portfolio would have grown to $2,544 versus $1,153 in the S&P 100. The strategy’s annualized return was 3.3% greater than that of the S&P 100.

4. Finally, analysts from Goldman Sachs and Deutsche Bank also contend that values based investing actually helps improve performance. [ http://www.thestreet.com/_yahoo/story/10673534/1/goldman-deutsche-back-do-gooder-funds.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA] The article suggests that negative screening is necessary, but not sufficient for realizing the potential performance of ethical investing; negative screening must be coupled with positive screens–those that focus on companies with responsible corporate governance, for example.

* Please note the Eventide Gilead Fund is used for illustrative purposes. This should not be considered legal or financial advice and is not a recommendation to buy this fund.  Please do your own homework and if you choose to invest in this fund, request a prospectus before investing.