Keen on Green
Winslow Green Growth fund is a rare discovery -- a top-performing small-cap fund that is also socially responsible. Its lead manager discusses some of his favorite eco-friendly companies.
Finding a well-run socially responsible fund is difficult. Unearthing a top small-cap socially responsible fund is nearly impossible.
Indeed, Winslow Green Growth (WGGFX) is the first such fund I've come across. While the fund's record is relatively short, it's impressive. Started in the second quarter of 2001, the fund has finished in the top half among its small-growth peers every year except for 2002. Over the past three years, it has returned an annualized 37%, putting it in the top 2% among its peers. (Editor's note: Return data was updated on April 19.)
Lead manager Jack Robinson, 63, brings nearly 30 years of money-management experience to the table. He launched his firm in 1984, and its record with private accounts has been impressive.
The fund's weak spot is that performance is extremely volatile, more than twice as volatile as the SP 500. That instability was on display in 2002 when Winslow plunged 38% -- ten percentage points more than the average small-cap-growth fund.
Robinson's investment style is responsible for the volatility, and, he argues, is also partly responsible for his superior long-term record. He and co-manager Matthew Patsky take big positions in tiny stocks. They generally own only 25 to 35 stocks, and their median market cap is tiny -- just $500 million. Several of the companies they currently hold haven't yet turned profitable. "We like to take big positions in small companies that we believe in, and let them run," says Robinson.
"We like to see rising earnings and revenues and profit margins, and we like to get companies at points of inflection," he says.
Robinson employs a three-pronged strategy. He hunts first for "green companies" -- those he believes are doing something positive about the environment -- such as Whole Foods Market (WFMI). He says there are about 250 of those stocks to choose from nowadays, most of them small caps.
Next he looks for "clean companies" -- firms "that don't have an adverse impact on the environment." That includes stocks in such sectors as health care, most service companies and software.
If he can't fill the fund with top-flight stocks in those two categories, he hunts for the cleanest and most attractive companies in other sectors. He calls these stocks "best in class." Currently, though, he doesn't own any of them.
In Robinson's mind, green is good when it comes to investing. Natural and organic food companies are becoming increasingly popular with consumers, and alternative and renewable energy stocks "are going wild" because of rising energy prices. "The technology keeps getting better," Robinson says.
Green Grow the Profits
Among his favorite stocks is Fuel-Tech NV (FTEK), which develops technology that removes pollutants from oil and coal-burning smokestacks. The company "has just started making money," and he thinks it should earn $1 a share in two or three years. That would give it a single-digit price-earnings ratio.
Robinson also likes Color Kinetics (CLRK), which uses light-emitting diodes to make super-efficient light systems. Lighting, he says, consumes one-fourth of the energy used in the U.S. The rap on Color Kinetics' systems is that the light isn't white. "Now they're on the verge of producing quality white light," he says. Although more expensive than conventional bulbs, the increased efficiency of Color Kinetics' products offsets their higher costs, Robinson says. He estimates that the company made close to 25 cents per share last year and that it will earn 40 cents a share this year. On this year's earnings, that will make the P/E 48.
Green Mountain Coffee Roasters (GMCR) is another holding. It buys beans from Central America but pays workers there much more than most coffee companies do, Robinson says. The Vermont-based company also is marketing Keurig single-cup brewers that make one cup of coffee at a time from a pre-mixed package. Robinson is excited by the single-cup operation. "It's a razor-blade business," he says. He estimates that the company will make $1.17 per share this year, giving it a P/E of 33. "It's not cheap, but it's growing rapidly, and the profit margins are going to expand."
Robinson's firm currently has about $300 million in assets, with slightly over half of that in Winslow Green Growth. Robinson plans to close the fund when assets reach $500 million. He thinks the firm as a whole can manage $750 million without making it inordinately cumbersome to buy and sell substantial quantities of small-cap stocks.
Opinions expressed in this column are those of the author.