Value-based investing as practiced by Capstone Asset Management, Houston, is not based on the value/growth split most investors would think of.
"We had clients come to us because, they said, `We don't see anything which reflects our values,"' said Donald McFadden, senior vice president of Capstone and an evangelical Christian.
Mr. McFadden said traditional socially responsible investing options do not fit the philosophies of Capstone's 116 institutional clients, primarily religious organizations. Some SRI screens allow for investments in companies that produce abortifacient products or conduct abortions in their facilities, distribute or produce pornography, or are supportive of same-sex unions or equal rights for homosexuals, he said. In addition, Capstone's portfolios don't necessarily exclude companies that have questionable environmental records, produce weapons or conduct animal testing.
"There's no pure company," said Mr. McFadden. He explained that Capstone screens companies for egregious violations of investors' values.
"We went with them because of the customization," said Gary DeBoer, investment manager for the General Conference of Seventh Day Adventists, Silver Spring, Md. The church, a six-year client of Capstone's, added screens to remove meat-packing companies and producers of caffeinated beverages because of the dietary practices of most congregation members. Capstone manages $480 million of the church's $1.7 billion in combined assets from a variety of different funds money.
In the year ended Dec. 31, Capstone's Values-Based Large-Cap index fund returned -11.89%, underperforming the benchmark Standard & Poor's 500 index by one basis point. From its June 1996 inception through Dec. 31, the index fund returned 11.85% vs. 11.8% for the S&P 500.
The company manages approximately $2.2 billion in institutional assets, said Mr. McFadden. Capstone manages $1 billion in values-based strategies and $2.8 billion in total assets.
