There are probably few investors who think of utilities as suitable additions for a socially responsible portfolio. Target Rock Advisors' Richard Rudden and Kyle Rudden tell MoneyShow.com why that sector does, indeed, fit into the SRI category.
Kate Stalter: Today, I'm speaking with Richard and Kyle Rudden of Target Rock Advisors, and you specialize in sustainable utility investing. Maybe we can begin today by describing for our listeners exactly what that entails.
Richard Rudden: First of all, we just think sustainable utility investing provides a tremendous opportunity for the demographic that's moving up, that's going to be looking for a lot of good total returns and current income from their investments in the future.
Sustainable investing, of course, is investing in companies, generally speaking, that demonstrate good social responsibility and energy-efficient performance, and that they tend to be all around good citizens. There is a presently huge and growing community of socially responsible investors out there that are seeking opportunities to make investments in companies that can be socially responsible and meet the mandates of the SRI objectives. We think that utilities can meet that purpose very, very well.
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They're not often considered that way, of course. They do things like pollute the air, and use a lot of water, and build power plants and transmission lines where people don't want them. But they also provide a tremendous number of services to society at large, which we believe is underrepresented or underappreciated in the investment community today.
Kate Stalter: As you were just alluding to, it does seem almost like two different worlds colliding. Obviously, utilities became popular, last year, particularly, as dividend plays and for stability.
But on the other hand, you've got a lot of people who are skeptical about anything that they perceive as socially responsible. So, what would you say to those skeptics?
Richard Rudden: Well, to skeptics, I'd say that we've done a fair amount of work that demonstrates fairly clearly that in the utility sector, the utilities that demonstrate good, sustainable performance in the long run tend to outperform not only utilities with lower sustainability performance scores under our scheme of things, but also, the broader utility indexes, as well as the broader S&P 500 index. So there's a real financial benefit in investing in the utilities that we have identified as being sustainable utilities.
Kate Stalter: Let's talk specifically about what investment vehicles are available to meet those objectives.
Kyle Rudden: We've scored and ranked utilities on 200-plus dimensions, measures of sustainability, and then created total return stock market indexes based upon three groups: high, medium, and low.
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And the high sustainability index really does offer a way to invest in a group of companies that collectively offer higher yield, safe and growing dividends, good total return potential, and much lower risk and volatility than broader market and even broader, more established utility indexes.
So, basically, current income and capital preservation with some upside, all the while investing in a socially responsible way.
Kate Stalter: Specifically, if an investor is interested in getting into this space, where do you suggest they begin their research, how do they go about this?
Kyle Rudden: Well, this is a brand new index, so as of yet there aren't any institutional products associated with it. We're certainly working on that, but for now individual investors can certainly go to our Web site, which is TargetRockAdvisors.com. We have some free tools on there, and they can use our scoring and ranking system to help identify and decide on individual stocks for their portfolio.
Kate Stalter: Any individual stocks at all that stand out right now, or that you would suggest people take a look at?
Kyle Rudden: I would suggest they take a look at the 15 in our high-sustainability index. The average yield in that index is 4.2%.
That compares pretty favorably to about 2% of the S&P 500, and a little higher, about 2.8%, for the Dow Jones Industrial Average.
And it's even higher than the other broad utility indexes, the S&P utility, Dow Jones utility average, and Philadelphia Utility Index, which averages about 3.9%.
Richard Rudden: What might be interesting for them would be to take a look at the rankings of our utilities as well, the sustainability rankings. Not necessarily the stock market index that we've developed, but as we've scored and ranked the various utilities, and there they can see the individual utilities that are members of our various indexes and they could also see how well they scored on the sustainability basis.
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