Winslow Green Growth Fund
Jackson W. Robinson
Author: Alexander Vantchev
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|Jack Robinson spent the last 20 years proving that it pays to care both about portfolio performance and the environment. With a total return of 98%, his Winslow Green Growth Fund ranked among the top 5 growth funds for the 12 months ending November 2003. Jack told Ticker how the green screens and growth prospects led to the big payday.
||Winslow Green Growth Fund|
Q: What led to the decision to create a fund with this particular format?
The idea was that if having seen firsthand that you could be environmentally responsible as a company and having your bottom line augmented by having a very low environmental cost, then why wouldnít it make sense to add an environmental screen of some kind. And I did that for a couple of clients over about a six-year period with the understanding that I was doing that from a hands-on experience. I discovered that you really donít have to sacrifice performance at all to take care of all the environmental consequences.
We became much more sophisticated from our first go at this in the 1980s and now we really break the world into what we call the greens, the cleans, and the dirties. We avoid the dirties. The reason we do that is because these companies have large liabilities, known or unknown. The one that is talked about the most today is asbestos. We had over 50 companies gone bankrupt, not all public, by the way. If you create a toxic-waste material, you have to clean it up, or you have a liability that travels with you wherever you go. So to the extent that you are not creating these, or you donít acquire them, or help create them, you can have a stronger balance sheet.
Q: How did you decide to go to the retail investor with that concept?
We started with a very small commingled fund with a couple of institutional investors eight years ago. The commingled fund, as you know, cannot be actively marketed, because it is restricted to qualified investors, but the results were audited. So, we tested out the concept and had some very good numbers. We had a lot of demand, so we decided to convert it to a registered mutual fund. We did that two and a half years ago and called it the Winslow Green Growth Fund. It is a no-load fund, and the performance numbers go back much more than two or three years, even if they are not necessarily recognized by the fund trackers. But they are audited numbers from very much the same portfolio that I run today.
Q: The government seems to maintain that the ďpro-businessĒ view means in some cases drastically lowering the environmental standards in favor of job creation, or whatever they advertise. Isnít there a rift?
Well, this is the current administration and, politically, it is in some cases the accepted way of thinking. But it is really quite wrong. Incorporating the environment in your thinking can enhance jobs. We need look no further than the oil industry. The oil industry in this country is not creating many jobs at all, because we are importing most of it. The fact of the matter is that if we were putting up more energy-efficient windows or advancing the call for fuel cells, we would be creating a lot more jobs domestically. The current thinking of the current administration is that what we need is drill for more oil. We are running the risk, and we are actually losing the technological battle here, not only to the European, but also to the Japanese companies in the energy space. There is no question that it is a major issue. But the fact is that we create a lot more jobs if we put up windows. And we would be helping the balance of payments.
Q: You spoke about bankrupt companies before. I see that your largest holding is Chiquita. How did that particular company, emerging from bankruptcy, made its way into Winslow Green Growth?
We didnít own it back then. Chiquita was definitely not a company we would own before it went bankrupt for a couple of reasons. One is they didnít past the financial viability test. The second is the environmental screen that we do on all of our companies. Up until the change in management, the company was not sharing any kind of information with the environmental community and what they were doing in terms of organics and how they were treating their labor force in Central and South America.
The old ways didnít help them at all, and they had to file for bankruptcy. The new CEO, who is out of Chicago, one of the large consulting firms, is very open to the environment. He is not only the chief executive officer, but also the chief environmental officer. His company is very fast-tracked to convert itself from simply being a supplier of commodity product to reach further, integrate vertically, and deal much more directly with the consumer. ďChiquitaĒ is one of the ten best known brand names in the world. So, they have a great opportunity, but they arenít going to fool anyone if they are going to be using a lot of pesticide.
Q: The organics are obviously a persistent theme in your portfolio construction. Do you really see a verifiable growth trend there?
Yes. We call it the ďhealthy livingĒ category and this was not even an industry ten years ago. These were usually individual farmers and organic growers selling their product on farmersí markets and supplying a few select restaurants. Now, it is a $20 billion industry in this country and it is growing in the upper double digits.
One of our top 15 holdings is Whole Foods, and we held this stock for a very long time. When they went public, everybody laughed at these guys, saying: ďThis is not an industry. You canít go like this and compete with the big supermarkets. You got the whole thing wrong.Ē In the meantime they went up to 150 stores nationwide, $4 billion market cap, growing at 20%, and it just keeps on going. Meanwhile, some of the traditional supermarkets went out business. That is not because of the natural foods, of course, but sometimes even the traditional stores are beginning to pay attention to organics and try to introduce it, but it is very hard to integrate that new kind of thinking in the traditional supermarket store. Because it is not about organics or focus, it is about the general commitment of the management of these stores from the CEO on down.
We, the consumers, are getting much more educated about the importance of the food we eat, the water we drink, and the air we breathe. So, we, the educated consumer, are understanding more and more about the importance of not introducing chemicals into our body, because there are so many chemicals that we canít control, while this at least we can control.
When you look at mothers, they are very concerned about their babies and about giving them the best. A lot of it has actually started there and that is why we see these organic baby foods doing so well in stores. So, part of it is education, and part of it is economics. The cost of food has come down, and the incomes have gone up, and now we are actually able to absorb pretty easily the incremental cost of organic foods, if you make it a priority. That saIdent, as the demand has gone up for organic foods, the production has gone up and so the prices are coming down, because now the growers have a permanent market year round they can sell their product to and be paid on a regular basis.
Q: Going back to the Green Growth portfolio, I can see a lot of small to mid-sized medical technology companies. How did they fit within the overall concept?
First, on the small-cap orientation, we have found about 250 public companies that have a green product or service and 80% of those companies are small-cap growth companies. That is why our focus is the small-cap growth world. There are a lot of interesting green companies, but just because they are green, it doesnít mean they you are a good investment.
Once again, we have the green category and the clean category. The clean category is much broader and these are companies that are generally neutral on the environment. That includes a lot of medical products companies, biotech companies, software companies, certain technology companies.
We didnít have a very good year in 2002. So, we made a very firm decision in the third and fourth quarter to move away from companies, be them green or clean, that were pretty dependent on the economy, because we didnít have any idea when the economy might get better and still we donít have any idea when that is going to happen, although there are people sounding more positive. So, we did our portfolio gardening very heavily and we actually sold some of our alternative energy companies, we sold a water company we had that was very dependent on the economy. That led us into the healthcare space.
So, there is a company called Polymedica, they are into the diabetes business. This is a company which under the previous management got into some hot water with the DOJ and the SEC, but really has a great product line with a relationship to about 600,000 diabetics, and also senior citizens on Medicare.
Q: So, you just saw healthcare as being best shielded from this economic downturn?
Exactly. We donít want to be altruistic about it. Our investors want to make money.
Q: Letís assume, then, just for the sake of argument, that the economy is picking up, the market is right, and this is for real. Which companies will find their way back into your portfolio then, if growth comes back?
First, these companies will not do badly in a better economy. They just may not perform quite as well as some of the more depressed, economically sensitive companies. At the same time we do keep a shopping list here on a pretty broad pool of green companies. For example, one of the areas that we are interested in and have some investments in the past is water. Water is a big issue Ė there isnít enough of it, and where there is enough of it, it generally isnít as clean as it needs to be. A new position in the portfolio in the top ten is a company called Ionics. Ionics is company that we knew for many years. It has a water desalinization technology, and it has been pretty cyclical. The good news there is that there just has been a change in management. The new management is very focused not only on building business in the water area, but doing it in such a way that they can also develop recurrent revenue streams.
Q: What is really happening in the purified water market? Is it going to be another best market we never heard about?
This trend just keeps on going, frankly. The quality of the water across the country is getting worse. People start to worry about all that perchlorate going into the rivers and then into the fruits and vegetables in Southern California. And they start thinking we have a problem here, a serious problem. Those companies, like Kerr-McGee and others are really good short candidates.
Q: What other growth companies are in your ďrecovery shopping list?Ē
We have a company in the portfolio called Fuel Tech. We have been following this company for 20 years, and their original focus was to clean out the smokestacks of the coal-burning utilities. That is a very tough sell, particularly with the administration trying to loosen up the air pollution rules. But they also created a technology that allows you to burn coal much more efficiently, which reduces the heavy slagging. Slagging is a huge cost for big boilers that burn coal, because it builds these very hard clinkers and you really had to use dynamite. The annual payback for their product, which is basically injecting magnesium into those boilers in the utilities, runs at 300% or 400%. So, here is an example of a company that is certainly in an economically sensitive industry, but it has a product with a big payback, so the decision really makes itself. It is a growth company well poised to benefit from a growing economy.
Q: Your companies are far from being widely covered. How do you do your research?
We have a total of six people, but we are a separate operating division of a company called Adams, Harkness & Hill, which is an investment bank in Boston that happens to follow emerging growth companies. However, because we run between 30 and 35 stocks in the portfolio, we like companies that donít have much following on Wall Street.
We visit every company, because we have to do an environmental review of every company. One of the advantages of that is that part of the environmental checklist has to do with corporate governance. How a company looks at the environment is also a wonderful indicator of its corporate governance. There is definitely a correlation.
Also, our institutional clients tend to be institutions that care about the environment, so one of our great sources of information is our client base. That is where Chiquita came from. Our clients are so interested in what we do that we have an ongoing dialogue with them and they share ideas with us. The best ideas, frankly, tend to come from other money managers, our clients, and our own work.
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