Josh Strauss is the Co-CEO and Portfolio Manager of Appleseed Capital, an investment management firm that helps investors design and implement a values-based investment solution based upon their impact investing needs.
Prior to joining the adviser in 2004, Strauss held positions in research analysis and business development, including as Director of Business Development at Color Kinetics and a role as a Research Analyst at Shearman & Sterling. Strauss earned a BA from the University of Virginia and MBA from the University of Michigan.
Christopher P. Skroupa: Investors are increasingly taking an interest in impact investing. What’s the value they see here?
Josh Strauss: Impact investors like ourselves have increasing concerns that many of the world’s most pressing problems – poverty, climate change, limited access to healthcare and education – simply are not being addressed by government actions by themselves. Rather, they want to use their private capital to address such problems head on.
At Appleseed Capital, we primarily invest our clients’ capital in the public markets. In the context of public investing, impact investing means measuring social and environmental performance in tandem with financial performance. It means engaging with companies to encourage them to improve their environmental and social performance. And it means making an impact by providing much needed capital into your local community.
For many, it simply comes to being able to sleep at night with your investments. We are seeing an increasing number of clients who want their investment portfolio to match their values. Most investors who care about environmental and social issues would be horrified to know that they own a gun company or a tobacco producer in their investment portfolio.
Skroupa: To a degree, the same can be said of ESG. What is your strategy for determining that a company is undervalued in this area?
Strauss: We believe that investing in companies that take a comprehensive and long-term oriented view of their business will expose our portfolios to less risk of permanent capital loss. In addition to looking at ESG, we are fundamental bottom-up value investors. Like Ben Graham and Warren Buffett, we try to buy companies for our investors which are worth a dollar for fifty cents.
As value investors, we try to avoid downside risk; we spend a lot of time looking at balance sheets for financial risk and we spend a lot of time looking for off balance sheet environmental and social liabilities. Our approach has helped us steer clear of value destructive situations on behalf of our investors such as oil spills and business and accounting scandals.
Skroupa: What are the key indicators that determine a high quality company may be undervalued?
Strauss: Much like traditional investing, impact/ESG investing is combination of both art and science. Ideally, investors should want to buy companies with robust growth rates and high returns on capital, combined with low valuation metrics like price/book, EV/EBITDA, price/earnings, etc. Beyond these quantitative metrics, other key indicators that help us to identify undervalued assets include high insider ownership and hopefully recent insider buying. Capital allocation history would lead one to understand the extent to which management teams are good stewards of capital.
Beyond that, we are looking to invest in companies in which most of the potential bad news in the company is already reflected in the stock price. We want to deploy capital after the skittish, short-term investors have already exited the investment. As contrarians, we want to buy stocks that the market hates and sell stocks that the market loves. Thus, if we enter into an investment where the downside is already baked into the stock price and the company subsequently improves its fortunes, we benefit when the market sentiment around the company reverses itself.
Skroupa: What do you see in the future for impact investing?
Strauss: Looking forward to 2018 and beyond, we expect to see the recent trends surrounding impact investing remain solidly intact. We believe that more and more traditional investors and asset managers will come to understand the value, both social and financial, of investing with a purpose, and we are confident that the impact investing industry will continue to evolve in response to the changing political and economic environment. We expect impact asset managers will continue to develop innovative solutions to meet the needs of investors in a volatile and unpredictable world.
We believe the dynamism of this industry will lead to yet another year of material growth in 2018, but more importantly, we hope that 2018 will be remembered as the year in which shareholders finally took the reins and shifted the responsibility for holding companies accountable from the government to the private sector. Engagement should take an increasingly prominent role in the impact investing space, as investors come to realize that this is one of the most effective ways to make a difference with their capital.
Josh Strauss will be speaking on a panel entitled Active Stewardship: A Look at Public Equities and the Integral Nature of Impact Investing at the Impact Investing conference in Washington D.C. on May 3.
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