How to reduce risk in your ethical portfolio
Look for companies that solve problems or meet consumer needs in the new financial environment.
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Is it easier or harder to assess the risk of these firms as opposed to companies in general?Skip to next paragraph
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DeSantis: The difficulty is in the measuring. When you're measuring quantitative factors, like cash on the balance sheet, that's easy. You can't fudge that and you can measure it quite simply. When you're measuring the ethical component, it's more difficult. But it's [still] easy to do. We do it all the time in the grocery store. You buy tomatoes, you just don't pay attention to the price per pound. You pick up the tomato and you look at it. You look at the texture. So you get the same sort of analogy if you can go in and [investigate an ethical company].
How do you do it?
DeSantis: The same way you investigate your baby sitter before you hire a baby sitter. You do reference checks, you go visit the company, you talk to management, you talk to competitors within the field, vendors. How are they being treated? Everybody has a reputation. And that's pretty easy to ascertain.
If clients are worried about risk, where do you tell them to put their money right now?
Clark: Step back. Look at the forest. Say, "OK, this is the direction where things have to go...." When a government finds itself in an uncharted territory, an unhappy area, they do things like pulling infrastructure plays forward. We have 650,000 miles of water pipe in the United States; 30 percent of it in New York City was installed during the Lincoln administration. They're going to pull that forward – those kinds of jobs – forward to do some of that infrastructure play.
DeSantis: We take a view of looking within society at big problems and then what are the companies that are providing solutions to those problems. The advantage of that is that it's long term, it's sustainable. Issues of water are real and they've been around for a long time. I think it was a big theme in the Roman Empire, too. It will be a big theme next year.
What are three good places or companies to invest in?
Clark: Let's do the other side first. Will Rogers said: "Sometimes the return of my money is more important than the return on my money." The challenge when you get here is people start to hide.... When things get tough, governments lower interest rates. You can't go hide. Inflation will eat you alive. That goes to the diversification and that long-term planning. Go to food. People will eat. The consumers are not broke. Do not buy into that. It is not true at all. Wall Street has merely lost the ability to figure out where they're going to spend money next. I guarantee you they're going to eat. I guarantee you they're going to need healthcare. And I guarantee you that they're going to use different software devices to make their lives better – the gadgets, if you will, that really add to life.
DeSantis: I’ll start off with Unilever – for people who want a stable growth business. I think 50 percent of their growth now is from emerging markets where they’re doing a good job of educating people on hygiene and basic products. And they have a stable business. They’ve been in business a long time. They have a good dividend yield. And it gives you growth opportunity. For a little more risk-taking, there’s a local company called Metabolix. They’re a bioindustrial company. The concept there is that they make a biodegradable plastic that will be introduced in the country in the second quarter of 2009. And plastic is a pretty good problem.... About 8 out of every 10 plastic water bottles end up in a landfill somewhere. We know it’s a problem. It’s growing. And here’s a company that has a solution.