Typically, when investors think of socially responsible funds, they think of windmills, herbal tea and other do-good investments that sacrifice return for values-driven goals.
What they don't expect to see is the sort of investments that the Chicago-based Appleseed Fund (APPLX) has sought since its inception in late 2006: contrarian, market-beating mid-cap stocks in a "go anywhere" range of asset classes that runs the gamut from consumer staples to industrials to international stocks to gold to community bank CDs.
Talk to co-portfolio manager Josh Strauss (left), though, and his contrarian spirit becomes quickly apparent.
"Inflation risk is huge over the next three to five years," said Strauss in an AdvisorOne interview on Tuesday. "The market is chasing bonds, but it's a herd mentality. Look at all the money-printing the U.S. government has done. People have been flocking to the dollar as a safe haven, but don't they remember what happened last August? Our debt levels just broke 100% of GDP."
Strauss' answer? Buy gold, as well as consumer staple stocks with exposure to the growing middle class in emerging markets such as Brazil. And scrap all of the too-big-to-fail banks: Bank of America, Citi, Goldman Sachs, JPMorgan and Morgan Stanley.
According to Strauss' brother, Adam, another Appleseed investment manager, any company that goes into APPLX's portfolio has to meet two criteria. First, it must pass a strict value criterion, meaning stock price and the fund managers' estimate of intrinsic value; and then it also has to pass through both negative and positive sustainability screens.
Tobacco, Booze and Big Banks
"Negative screens are industries that we just try to screen out, such as the tobacco industry, alcoholic beverages, gambling, weapon systems, pornography, and more recently we added a new screen on the too-big-to-fail banks," said Adam Strauss in an interview last April with The Wall Street Transcript.
APPLX has the numbers to back up its portfolio picks. Now in its fifth year, the fund is the top ranked mutual fund by performance for the five years ended Dec. 8, 2011 in Morningstar's Mid-Cap Value category among 282 funds. In those five years, the Appleseed Fund generated an annualized total return of 6.1%, exceeding the -0.5% annualized total return of the S&P 500 during the same period.
The fund's net assets, overseen by five investment managers, total $210 million invested in 24 total holdings as of Jan. 25.
