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Values-Based Investing: Aligning Your Portfolio with Your Principles

Should you invest in a company that sells products made overseas by underpaid or underaged workers? What about an industry with a terrible safety record or a history of polluting the environment?

How about tobacco companies…or other corporations that profit from gambling or sales of alcohol or pornography?

Are there lines Investors shouldn’t cross? And if so, where do we draw them?

Let’s examine the issue of values-based investing more closely and see if (and how) it might impact your investment decisions.

Not Just Value (singular), but “Values”

In the world of finance, there’s a growing trend that transcends mere profits. 

It’s called values-based investing.

With traditional investing, the primary goal is economic value. You’re trying to purchase stocks at a good price, in the hope that those investments will increase in value.

With values-based investing, the primary emphasis is adhering to certain ethical or moral values, plural. You still want to find stocks with a financial upside, but there’s an added incentive. You’re trying to make sure the companies you invest in align with your ethical ideals or spiritual beliefs. 

In other words, values-based investing transcends merely trying to get a good financial return. It’s about using your money to advocate for morals or principles you believe in. You’re not simply growing your wealth, you’re also trying to make the world a better place.

Not for Everyone

Obviously, different people have different standards and scruples. Because of this reality, at Christy Capital, we offer both investing approaches. 

Earlier today, I was talking with a prospective client. I did not push him toward a particular mutual fund. I did let him know he has choices. 

In essence, I said, “We offer two different paths that investors can go down.”

I showed him some of the traditional funds–in this case, Vanguard–that we often recommend to clients. And I explained how they have performed over the last few years. 

Then I said, “And here are some of the values-based funds we recommend.

“These are families of funds managed by Eventide Asset Management and Praxis Mutual Funds. Both Eventide and Praxis avoid investments in products or activities that many people find questionable. This means they end up screening out between 10 and 12 percent of the S&P 500.” 

Eventide puts it this way on their website, “We invest in companies [that] create value for shareholders by creating value for others.” 

I then showed this man how the performance of the values-based funds over the last few years is actually very similar to the performance of the traditional Vanguard funds.

I ended by telling him what I tell all our clients, “It’s totally up to you. It’s okay either way. But if values-based investing is something you want–or want to at least explore–we can definitely go down that path.” 

Like a good number of our clients, he was interested in knowing more about values-based investing.

The Three Pillars of Values-Based Investing

Our approach at Christy Capital to values-based investing revolves around three essential actions: Avoid, Embrace, and Engage.

  1. Avoid: The first thing we’re trying to do is screen out companies that are engaged in activities that clash with an investor’s values. Again, these objectionable activities will vary from individual to individual. One client may wish to avoid investments in sectors like alcohol or tobacco. Another person may object to companies that profit from pornography or abortion. 

The underlying idea here is that, as an investor, if you purchase shares in a certain mutual fund, you will actually have ownership in the companies that comprise that fund. And so, if your worldview says, “I don’t want to own a company that is doing what some of these companies are doing,” then you’ll want to look at other funds.

This isn’t a “holier than thou” stance. Someone may say, “I’m not against an occasional drink; I just don’t want to be part owner of a corporation that manufactures and sells alcohol.”

Here, we’re simply trying to avoid having you support activities that violate your conscience. The principle is “let’s don’t put investors in the compromising situation of profiting from industries that don’t align with their principles.”

However, we don’t want to look out for companies with whom we disagree. We also want to look for companies that are doing good in the world. That’s the second aspect of values-based investing… 

  1. Embrace: Here we’re asking, what are the things we want to embrace?

Where are the companies that are doing things right? The criteria can be things like: How do they treat their clients? How do they treat their employees? How are they making the world a better place?

Old Dominion is a great example. Old Dominion has been in business since 1934. They’re a logistics company, a trucking company. They see their mission as “helping the world keep promises.”

One way they pursue that mission? Over 90% of their truck drivers are home every single night to be with their family. They’ve made a commitment as an organization: we want to strengthen the family.

And so, they do everything possible to keep their drivers from overnight runs. It’s not always perfect. But on any given night, 90% of their drivers are at home with their families. That’s a great value.

And that’s what we mean by embrace. We want to embrace companies like Old Dominion.

Then the last step is to…

  1. Engage: Here’s where it gets a little tricky. Sometimes there are companies in a particular portfolio that an investor may frown at. 

Take Disney as an example. In recent years, some groups have taken issue with the company’s direction and/or actions.  

Let’s say Anne is one of those people. And let’s say Anne discovers she has $1,200 worth of Disney stock in one of her mutual funds (as part of a much larger portfolio).

Anne can’t really go to the shareholders’ meeting and express her displeasure. And she’s not going to be able to get Robert Iger, the Disney CEO, on the phone and tell him, “Hey, bub, you’re doing this all wrong! I don’t agree with you doing ___ and ____. Cut it out!”

That’s not happening. The Disney board would scott at Anne’s meager $1,200 “owner’s stake” in the company

That’s where a mutual fund company like Praxis comes in. They can represent–and serve as a proxy–for thousands, or even tens of thousands, of like-minded “Anne”s.

Together, such a group represents a significant “ownership” stake in the company. And so now Praxis can sit down, metaphorically, with the Disney board (or the boards of other corporations) and say, “Listen, our sizable group of shareholders thinks that you need to work in this area. How can we help you address this issue?” 

This is the power of engagement. When we pool our resources together, we get a seat at the table in boardrooms throughout the U.S. In those settings, we can advocate for the values that we believe in. 

By ourselves, we would have no voice whatsoever. Together, we can use our influence to engage with the leadership of powerful corporations and advocate for change.

The Choice is Yours

To recap, value-based investing is about putting your money where your values are. At Christy Capital, we offer clients this option because we think it’s important to empower investors to make choices that align with their deeply-held principles and beliefs. 

So, whether you’re passionate about upholding certain spiritual beliefs, supporting social causes, advocating ethical business practices, or championing environmental sustainability, value-based investing offers you the best of both worlds:  the opportunity to invest with intention and impact–and, hopefully, to still see a financial return on that investment.

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