Asset management is a realm where the word "opportunistic" describes a virtue, but not everyone in the business is in it for money alone. There is, in fact, a whole sector known as "socially responsible investing" or "impact investing," where activist shareholders try to change the behavior of ethically challenged industries, or simply boycott them altogether. There are lots of SRI funds that won't touch alcohol or gambling stocks, for example, no matter how profitable they are.
But banks and health insurers? For Finny Kuruvilla, who co-founded and co-manages the $28 million Eventide Gilead fund (symbol: ETGLX), both industries fall into the same ethical category that other SRI funds reserve for the likes of Big Tobacco. Kuruvilla says he has shunned both sectors since he began managing money informally in the 1990s for friends and family, and has stuck with the policy since launching Boston-based Eventide in July 2008.
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Given the global train wreck that too-big-to-fail banks were about to cause, that was not just good optics, but good strategy, boosting performance considerably, Kuruvilla says. Likewise with for-profit health insurers, whose tactics have drawn heightened scrutiny thanks to the acrimonious healthcare debate.
Eventide is not the only fund that categorically avoids too-big-to-fail banksâ€"the Chicago-based Appleseed fund (APPLX) does likewiseâ€"but it seems to be alone in avoiding for-profit health insurers on ethical grounds alone. It also avoids the usual SRI suspects, like gambling stocks.
The fund marked its fourth anniversary July 1 up 35 percent since inception (a compounded 7.8 percent), compared with 5 percent for the SP 500 over that period. It's a no-load fund, but its 1.67 percent expense ratio was well above the midcap category's 1.38 percent average last year, and has been since inception. That's due partly to a turnover rate that Morningstar puts at 487 percent for last yearâ€"more than six times the category average. Kuruvilla says it's about half that, and that Morningstar will revise the figure in coming months. "We will sell more frequently when we don't agree with company behavior," says Kuruvilla. "Second, we have a lot of biotech stocks that can rise [or] fall on events like FDA approval."
Like many SRI funds, Eventide is motivated partly by religious conviction. Kuruvilla is a member of the Mennonite church, whose internal systems of healthcare finance he regards as superior to the existing U.S. system or to the Affordable Care Act that the Supreme Court recently upheld.
Kuruvilla thinks the global investment boycott of Apartheid South Africa in the 1980s and the investment strategies of the environmental movement are examples of what activist investors can achieve. We spoke with him recently about his work at the intersection of ethics and investing. An edited transcript:
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Was there a particular event that compelled you to avoid for-profit health insurers?
It's something philosophically I've done since I started managing money in 1995. It's a deep-seated conviction that I've held for a long as I can remember. I was very informally helping people manage moneyâ€"a friends-and-family type thing, and I would also avoid the sector.
And your objection to health insurers?
There are a few things. Their basic business model is built around what I would say is a perverse incentive: They try to collect money from those who have a lower probability of actually using healthcare, and then try to exclude people who actually do need the service so they can maximize profits. That basic business model is something that I just don't feel very good about. The fundamental business model is just fraught with ethical problems.
Why should there be this middle-man who makes millions of dollars when you can, in fact, set up something like a direct model, where individuals are effectively cutting out the middle man and working one with another? It think that's a very exciting model, and it's something I've personally seen work really well.
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