July 18, 2003 -- You could say the companies Jackson Robinson buys are green and growing, and while the description is hackneyed, it's not inaccurate.
Robinson, lead manager of the Winslow Green Growth Fund (WGGFX), looks for environmentally friendly business with increasing earnings and revenues, characteristics that are not mutually exclusive, he points out.
"A company that incorporates environmental responsibility into its planning and strategy can enhance its profitability," he says. For example, manufacturers that reduce energy consumption can cut costs to help beef up their bottom lines.
Conversely, businesses and industries that pollute, or whose products can produce sickness, stand to lose money if they're sued or forced to pay to clean up a site, Robinson argues.
As might be expected, the fund does not invest in the oil or nuclear power industries, and it generally avoids chemical makers. Tobacco and asbestos companies are shunned because of the illnesses these products can cause and their related potential legal liabilities, Robinson says. Weapons manufacturers are also excluded.
The fund welcomes companies whose products or services benefit the environment or are benign. Among acceptable investments are companies involved with renewable energy sources, such as sunlight, wind and water, as well as fuel cells, which convert hydrogen and oxygen into water to produce electricity and heat.
Once a company passes through the fund's environmental screens, Robinson and his team look for financial strength.
Although he's willing to bet on unprofitable companies if he thinks they will eventually turn the corner, Robinson wants to own those that can generate double-digit earnings and revenue growth. In addition, he favors strong cash flow. Most of the fund's holdings are debt free, he adds.
Environmentally responsible companies tend to be small or mid-sized, and as a result, the managers focus on those with market caps of $100 million to $2 billion, Robinson says.
Only about 32 stocks make their way into the fund. Concentrating the portfolio facilitates research and enables winners to significantly boost returns, Robinson says. Owning a relative handful of stocks also gives the fund a shot at beating its benchmarks, the Russell 2000 growth index and the Russell 2500 index, Robinson says.
"If you're looking to beat an index, you can't really look like" one, Robinson says. "The fewer names we have, the easier it is to beat the index."
Winslow Green Growth has been outpacing both gauges. The fund, which began operating in March 2001, returned 21.1% for the year ended in June, compared to gains of 0.7% by the Russell 2000, and 1.4% by the Russell 2500. The fund was up 52.9% this year at the end of last month, according to Standard & Poor's data.
A recent addition to the fund is Akamai Technologies (AKAM), which makes software for delivering content over the Internet. Robinson bought the stock about four months ago, when its valuation had fallen to a point where it seemed attractive to him. At the same time, Akamai's revenues were stable and in some areas increasing, according to Robinson, who expects the company's cash flow to break even in the third or fourth quarter. He thinks its earnings will start to rise next year.
Robinson cites Whole Foods Market (WFMI) as a favorite. The company operates a chain of supermarkets that sell natural and organic foods -- a $20 billion market and increasing -- while traditional competitors are "barely growing at all," says Robinson. Whole Foods itself is growing profits by about 18% annually, he says.
A long-term holding in the $31-million fund, which began life in 1994 as a common trust fund, Whole Foods accounted for about 4.1% of its assets and ranked tenth in the portfolio at the end of the second quarter.
The fund's No. 1 stock at the end of the last reporting period was PolyMedica Corp (PLMD), which makes and sells drugs for diabetes, respiratory diseases, and urinary tract disorders. The company has "extremely strong" cash flow, and no debt, and has started paying a dividend, Robinson says.
On June 30, PolyMedica said the Securities and Exchange Commission questioned the classification of the company's advertising costs. Robinson, however, expects the accounting issue to be resolved, and believes that will help boost the valuation of PolyMedica's stock.
The fund's top holdings last month included three other health care stocks: AtheroGenics (AGIX), Conceptus Inc (CPTS), and STAAR Surgical (STAA). All offer or are developing products that should improve their financial results and stock prices when the companies find distribution partners, Robinson says.
AtheroGenics is working on drugs to combat chronic inflammatory diseases, including atherosclerosis and rheumatoid arthritis.
Cenceptus makes and markets a permanent birth control device for women that can be implanted in an outpatient procedure.
STAAR, which makes vision correcting products, is developing a contact lens that is implanted in the eye and will compete with Lasik eye surgery.
All told, drug and medical device makers made up nearly 25% of the portfolio last month, and companies that manufacture medical, dental and hospital equipment and supplies had 6% of its shelf space.