The Vegan Investment Portfolio

Every once in a great while I’ll hear a song that will stop me in my tracks no matter what I’m doing, as time goes on that seems to becoming a rarer event but last night it was: Gnarls Barkley with “Who’s going to save my soul”.   It could have been Motown back in the day but the slight hip-hop melody makes it a stunner.

One of the most common requests we receive from new investors is the Vegan investment portfolio.   For more then two decades Socially Responsible Investing revolved around broad themes such as environmental and military issues.   In the early 1990’s we introduced the concept of Humane Investing or avoiding companies with operations harmful to animals such as factory farming.

But now a new trend is emerging that we’re happy and capable of accommodating: The Vegan Investment Portfolio.

The Vegan Portfolio is built upon our standard humane investing concepts but with a closer and more discerning eye for details of a companies operations.    While many investors employing socially responsible investing strategies may include owning Whole Foods Market or Chipotle Mexican Grill the Vegan criteria excludes such ownership.  But in our experience its also not accurate to assume that the Vegan portfolio must exclude consumer staple or food stocks.   In the past year we’ve owned stocks such as J. B. Sanfillippo and Sons symbol JBSS (nuts) or Calavo Growers symbol CVGW (avocados).

We like to think that owning individual securities with our proprietary quantitative investment strategies offers investors a very strong alternative to mutual funds.   Investors must keep in mind some basics of mutual fund practices:

By our calculations mutual funds that classify themselves as “Large Cap” only have approximately 500 stocks to choose from.

Mid Cap mutual funds have approximately 840 stocks to choose from.

Once you consider that a Vegan screen combined with other social screens could eliminate at least 30% of the universe of stocks to choose from the remaining investment choices can be quite limited.  If you’re a Large Cap fund that could mean less than 350 stocks to choose from which is a major reason why applying social screens to Large Cap mutual funds are quite difficult to implement and why you can be quite surprised when you see the contents of an SRI fund.

RMHI has the entire U.S. equity universe to choose from or approximately 6800 stocks which is quite an advantage.  In addition, we can avoid the large multinationals that have hands in many businesses and focus on companies that are specific in their business operations which gives us confidence that their practices meet our social screening standards.

Since our universe of selection is relatively large compared to mid cap and large cap funds the implementation of a Vegan criteria is much easier to implement.

A Vegan criteria screen eliminates the following, but not limited to:

Factory Farming including all producers of non vegetarian foods.
Leather / Hunting retailers – including shoe retailers such as Brown Shoes or Cabellas.
Firearms manufacturers.
Animal Testing companies which includes biotechnology and pharmaceutical manufacturers.
Restaurants including fast food restaurants.
Specialty chemical companies that create compounds that could be used in support of other offending companies.
Extractive industries such as mining, gold, petroleum and needless to say fracking.

I’m sure there are other classes of companies to be excluded and we will usually address them as they come to the top of our rankings systems.   But have no fear if you might think the list above is too restrictive, our 30 stock portfolio on Collective2.com is by most definitions a Vegan portfolio.

There are always companies that fall into gray areas where there is no right choice except the choice most comfortable to the investor.   A recent example is Big 5 sporting goods which sell items like baseballs, baseball gloves and footballs all made with leather.

To summarize, while many non SRI investment planners and advisors may have little idea what a Vegan portfolio looks like they are always welcome at RMHI.  In addition the realities of owning and managing large and mid sized mutual funds can make social screening impractical due to the limited size of the stock selection universe.   This can be avoided by including smaller sized companies (under $500 million capitalization) .

RMHI owns no positions mentioned.