Core values drive Appleseed Fund to 57% gain this year

With a 20% allocation to cash and a 10% allocation to gold, the Appleseed Fund (APPLX) is hedging all bets. “When the stock market goes up by more than 50% (as it has since March) we are seeing fewer values,” said fund manager Adam Strauss, justifying his lopsided allocations. Any critics of Mr. Strauss' strategy might want to first consider the fund's 57% gain from the start of the year. This compares with a 21% gain by the S&P 500 over the same period. The $100 million fund, launched three years ago, is managed for value-oriented social conscientiousness. The fund will automatically screen out companies is certain industries, including alcohol, tobacco, weapons, gambling and pornography. The strategy also applies “positive screens” for companies with solid performance in the areas of human rights, environmental causes and community impact. Mr. Strauss said the socially conscious focus and the value-oriented strategy run side by side in his stock analysis. On the valuation side, stocks are considered when Mr. Strauss can anticipate at least a 50% upside. One example of the kind of value he is finding is PDI Inc. (PDII), a provider of biopharmaceutical sales and services. PDI's stock price has been as high as $6 and as low as $3 this year but is currently trading at around $4, where it was at the start of the year. The appeal to Mr. Strauss is the company's $5-per-share worth of cash on the balance sheet, while management moves forward with efforts to revive the business. “This company is in turnaround mode, and management will either turn it around or sell it,” he said. The fund's heavy cash position is a direct reflection of Mr. Strauss' macro theme, which includes less value at the moment. In March, when the stock market hit its low for the year, Mr. Strauss was fully invested with a zero cash position. The allocation to gold is a hedge against inflation. “We think eventually we'll see higher interest rates,” he said. Inflation is also being hedged with investments in select multinational companies, including The Coca-Cola Co. (KO), Johnson & Johnson (JNJ) and Avon Products Inc. (AVP). “The Fed is trying to depreciate the value of the dollar, and that is going to stimulate export growth,” he said. Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives .