This Socially Screened Mutual Fund Is Charging Ahead

When Matt Gershuny and Lori Keith took over the management of Parnassus Mid Cap (PARMX) in October 2008, the stock market was in free fall and would finish the year with a decline of 37%. But Gershuny, the fund’s lead manager, and Keith persevered and have more than doubled shareholders’ money since coming on board. From their arrival through August 31, Mid Cap returned 12.4% annualized, beating the fund’s benchmark, the Russell Mid Cap index, by 0.4% and topping 92% of its peers (funds that invest in midsize companies). It's a member of the Kiplinger 25.

The past year has been especially rewarding. Mid Cap’s 16.5% return blew past the fund’s bogey by a whopping 6.6 percentage points. Among its best performers: Insperity, which provides human-resources services for small and midsize companies, gained 53%; document-storage company Iron Mountain rose 42%; and Sysco, a distributor of food and equipment to restaurants and institutions, gained 36%. Says Gershuny, “People are paying for active management, and what we’re doing is working.” The fund charges 0.99% in annual fees, down from 1.14% three years ago.

Parnassus practices so-called socially responsible investing. Mid Cap’s managers favor firms that are mindful of the environment and their employees; the managers won’t invest in companies involved in alcohol, gambling, tobacco or the like. Plus, a good prospect needs to dominate its industry, offer a product or service that’s in demand, boast a strong balance sheet, and have smart executives at the top. The final test: The managers buy a stock only if they conclude that a company’s basic value can, on average, increase by at least high-single-digit or low-double-digit percentages annually over the next three years.

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Gershuny and Keith have shown a knack for performing well in rough markets. In 2011 and 2015, years when the Russell Mid Cap lost ground, they beat the index and their competition.

The pair have been adding to existing holdings when prices dip. One such stock was Motorola Solutions, which fell 17% from early May through late June. New recent buys include apparel maker Hanesbrands and Fortive, an industrial firm that was spun off from Danaher in July.