Are you an investor? If so, you likely recognize that most of your peers — personal and professional — are inclined to stick to a rigid approach in sorting among companies they hope will enhance their portfolios.
In doing so, however, they just might be overlooking an opportunity to place a stronger foundation beneath their research processes. Oh sure, it’s crucial to examine a target company’s history, its prospects and, of major importance, the industry in which it operates. Ditto its relative valuation, the strength of its balance sheet, its margins and its cash flows.
But as one with a longer investment background than I care to specify, that traditional analysis falls short of a fully-blown examination — one that brings with it at least the possibility of steadier performance, especially during times of extreme market volatility. You see, to a progressively greater extent, groups of investors are adding qualitative investigations to the more usual quantitative forms.
This additional investment approach falls under a host of rubrics, including socially responsible or sustainable investing. By whatever name, it represents a search for companies whose managements are highly attentive to values, ideals and standards. That attention, in turn, tends to lead to companies that face lower employee turnover and stronger relationships with customers and the communities in which they operate.
Let’s take a quick look at a few examples of what I mean by values-based corporations. For starters, you obviously know that Lowe’s Companies (LOW) is a purveyor of a wide range of home improvement items and materials across North America. But what you may not realize is that hundreds of the company’s employees volunteer their services annually to foster the efforts of the well-known Habitat for Humanity. In addition, since 2003, North Carolina-based Lowe’s has contributed more than $65 million to what is often just termed Habitat.
But that’s not all. Another charitable foundation run by the company is “Lowe’s Toolbox for Education.” It’s objectives? Simply the fostering of increased parental involvement in their children’s education, along with providing grants to parent groups to help improve the schools.
In Columbus, Ga. — near Fort Benning, the giant U.S. Army base — lies the headquarters of Synovus Financial (SNV), a banking institution that operates more than 260 offices across much of the South. The company has garnered more than 21 Greenwich Excellence Awards, following a selection process that involves more than 30,000 market research interviews across the country.
It’s also noteworthy that Synovus’ corporate literature includes a pledge of “an unwavering commitment to our corporate values: Treating people the way we want to be treated.”
You may also know that an expanding cadre of companies across the U.S. have added corps of chaplains who are available 24/7 to aid employees and their families in times of travail or whatever their needs may be. Tyson Foods (TSN) maintains a staff of about 125 chaplains, while Charlotte-based Coca-Cola Bottling Company Consolidated (COKE) numbers its group at more than 50 chaplains.
The above-named companies are just a smattering of those that have distinguished themselves through increasing and unwavering attention to values and standards. An obvious question then becomes the extent to which values-driven companies are able to stack up over time against the market averages and indexes.
There’s more than a little evidence that values-centric companies, whose attention extends beyond the mere accumulation of the next buck, frequently outperform many of their peers.
One indicator clearly lies in the significant growth in socially responsible investing. As recently as 1994, values funds controlled approximately $89.6 million, an amount that had ballooned to more than $23 billion by the end of 2015.
In that same year, Morgan Stanley, the eminent investment bank, conducted an analysis of fully 10,000 funds. It’s conclusion? “... Strong sustainability investments outperformed weak sustainability investments.”
And beyond that, author and clinical psychologist Noelle Nelson has quoted Healthstream, Inc., the workforce consulting firm, to the effect that “... companies that effectively appreciate employee value enjoy a return on equity and assets more than triple that experienced by firms that don’t. (Among) Fortune Magazine’s ‘100 Best Companies to Work For,’ stock prices rose an average of 14 percent per year from 1998-2005, compared to 6 percent for the overall market.”
There’s lots more to be said about socially responsible, values-based or sustainability investing. But you get the picture: You just might benefit nicely from stretching your equities research well beyond the typical limits.
