From the beginning, Rocky Mountain Humane Investing was founded to meet the real needs of ethical investors, to offer solutions unavailable in the mutual fund industry.
Risk control and capital preservation
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, so we always wonder why well-meaning investment professions state that you need to “ride out the storm” using the same asset allocation of stocks and bonds as when the economy was growing.
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 because the average investor is highly likely to sell their stocks or stock fund when the emotional pressure of losing money becomes too much to endure. Plus, it’s likely in a 10 year period there will be at least two market sell-offs in the 20% or more range, so the investor is faced with multiple instances of gut wrenching losses. Our goal is to be more proactive and reduce our stock exposure when the markets break below important technical measures and when Treasury bonds signal an imminent recession.
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 it’s imperative to own the safest asset classes possible. A credit crisis will affect the corporate bond market which is why corporate bonds especially high yield bonds are not very safe in a recession. We’ve invested through several recessions and there are only two asset classes that an investor can rely on during a recession that let you sleep at night and neither one 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 and exceeding 30 holdings loses the advantages of diversification while 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 which 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 and 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.