Sustainable Investment Philosophy

Sustainable Investment Philosophy

RMHI was founded to meet the real needs of ethical investors for a Sustainable Investment Philosophy. We offer solutions unavailable in the mutual fund industry.

Risk Control: Sustainable Investment Philosophy

RMHI offers a set of investment solutions that complete a holistic view of the cyclical nature of economies and markets. It’s not a secret that economic recessions represent the greatest risk to the value of a stock portfolio. Hence we always wonder why well-meaning investment professionals state that you need to “ride out the storm” using the same asset allocation of stocks and bonds as when the economy was growing. This does not reflect a Sustainable Investment Philosophy.

Why is this so important? Fund salespeople and some Financial Planners like to show the long term chart of holding a fund or investment through extended periods of 10-20 years or more. While it looks great at the end of the time period, it’s not realistic. The average investor is highly likely to sell when the emotional pressure of losing money becomes too much to endure. Plus, a 10 year period is likely to have at least two market sell-offs in the 20% or more range. This leaves the investor faced with multiple instances of gut wrenching losses. Our goal is to be more proactive. We reduce our stock exposure when the markets break below important technical measures and when Treasury bonds signal an imminent recession.

 

Capital Preservation

Protecting an investor’s capital during the early onset of recessions truly sets us apart from most of the industry. More commonly, investors are told that proper diversification and asset allocation are the best ways to endure bear markets. In general, it’s safe to assume every recession will have a credit crisis. Therefore it is imperative to own the safest asset classes possible. A credit crisis will also affect the corporate bond market. This is why corporate bonds especially high yield bonds are not very safe in a recession. We’ve invested through several recessions. We have concluded there are only two asset classes that an investor can rely on during a recession that let you sleep at night. Neither of these asset classes are promoted by the mutual fund industry.

Socially Responsible Investing can be very effective using individual securities

Several studies show that a portfolio with over 20-30 holdings is enough diversification, while exceeding 30 holdings loses the advantages of diversification. Many mutual funds own several hundred. This means there is a high percentage of holdings that are owned merely to soak up capital raised by the fund. These holdings are either losing money for the fund or merely going nowhere. In our portfolios, we attempt to have every holding contributing to portfolio growth. Since your money is not co-mingled with thousands of other investors, there’s no need to own positions merely to be considered fully invested.

In addition, approximately 90% of growth oriented mutual funds lag the performance of the Standard and Poors 500 Index over extended periods of time. This lag has caused many of them to abandon stock selection. Instead they focus on mirroring the S&P 500 while still charging the higher fee associated with Growth Funds. In our opinion, a higher fee is worthwhile only if the portfolio performance exceeds that of the S&P 500. We continually monitor performance to make our fee worthwhile.

A look at our Vegan Growth Portfolio performance can be viewed via our page: Request Access to VGP Model Data