New Fund Combines Hard Assets and Social Responsibility

By Eric Fox | June 29, 2009 AAA

Most investors are probably familiar with mutual funds that invest in hard assets like real estate, natural resources or precious metals. Most investors are probably also familiar with the "socially responsible" mutual fund sub-genre, whereby the fund analyzes a public company's compliance with social and ethical responsibilities before investing. Well, how about a mutual fund that follows both of these guidelines?

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A fund that mixes both hard asset investing and socially responsible investing is the brainchild of Steven Mandis, the founder of SGM Funds. The fund is called the SGM Hard Asset Fund, and it has as its objective the long-term growth of capital.

Mandis is a veteran of Goldman Sachs, and Halycon Structured Asset Management, where he served in various functions, including Portfolio Manager and Chief Investment Officer. Mandis is also a value investor and looks for companies with strong balance sheets and high free cash flow yields. (Learn about the components of the statement of financial position and how they relate to each other in our article, Reading The Balance Sheet)

The Specs
The fund will invest in companies that get at least 50% of its revenues or profits from hard assets or has at least 50% of its assets in "tangible" hard form.

When considering the social responsibility issue of investments, the fund considers a range of issues based on environmental, social and corporate governance principles. These include respect for the environment and indigenous peoples, the ethical treatment of animals, timely disclosure and respect for the rights of investors. The fund also screens out the typical "sin" stocks that are involved with alcohol, gambling, tobacco or armaments.

The Fund So Far
The fund began operations on February 27, 2009 and has returned 8.2% through the end of May 2009. While this lags the return of the S&P 500, the fund's benchmark, there are two mitigating factors. First, value investing is a long-term game, and typically takes more than three months to come to fruition. Second, a three-month track record is too short a period of time to judge any investment manager.

The fund currently has some interesting positions. As of the end of May 2009, the fund has written put options on a range of different companies. The top five are:

  1. Petroleo Brasileiro (NYSE:PBR), the Brazilian oil company
  2. SPDR Gold Shares (NYSE:GLD), an exchange-traded fund (ETF) that attempts to track the price of Gold Bullion.
  3. Potash Corp (NYSE:POT), which makes fertilizer and feed products
  4. Amerada Hess (NYSE:HES), an oil company
  5. XTO Energy (NYSE:XTO)

This strategy allows the fund to collect premium on the contracts that are written, and get a favorable price if and when they are exercised.

The Bottom Line
Hard assets and socially responsible investing are not mutually exclusive, as Steve Mandis at the SGM Hard Asset Fund is set to prove. This will be an interesting fund to track during the upcoming economic recovery. (Read Go Green With Socially Responsible Investing for a related reading.)

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