By Michael Brush
It’s nice to think you can “do well by doing good” in green investing, as the cliché goes. But that’s hit or miss with mutual funds. Typically, more than half of active fund managers lag behind their benchmarks.
But Garvin Jabusch at Shelton Green Alpha Fund /zigman2/quotes/204079481/realtime NEXTX -1.67% actually makes it happen. His “green” fund beats its Morningstar mid-cap growth category and U.S. mid-cap index by 15 to 17 percentage points annualized over the past three to five years, according to Morningstar Direct.
That’s huge, and it is no easy task. So I checked in with Jabusch to see what he does to get this outperformance. Here are the three core strategies he says contribute to his superior performance, with stock examples.
1. Find companies that trade at a discount
Business schools have entire classes on how to calculate intrinsic value. We can’t get into all the details here. But at a high level, it’s key to find companies that stand out because they take an entirely different approach to solving some problem. This supports long-term value creation.
Using this starting point, Jabusch and his team then estimate the intrinsic value of candidates five years from now. If the discount is big enough, the stock looks attractive. Since Jabusch has a great record, let’s take his word for it on the long-term intrinsic value discount, with the following examples.
Crispr Therapeutics /zigman2/quotes/201181046/composite CRSP -7.69% : The current stock price of this gene-editing company in the $60 range will look cheap in five years, says Jabusch. Growth companies that don’t report earnings — such as this one — have been sold down hard in the flight to value and “safety.” Take advantage of the discounts.
“I find it shortsighted to sell something because it doesn’t have earnings today, when it is just so visibly valuable,” says Jabusch. Crispr Therapeutics is off nearly 60% from highs last July.
But its revolutionary technology for gene editing may create an entirely new class of therapies for diseases that biotech has so far failed to treat well. Crispr is working on therapies for sickle cell disease and another blood ailment called transfusion-dependent beta thalassemia. It is also developing allogeneic cell therapies to treat cancer.
This biotech company bases its technology on CRSPR, which stands for “clustered regularly interspaced short palindromic repeats.” Those are biological systems that can be programmed to target specific parts of genetic code for precision editing of DNA.
Caribou Biosciences /zigman2/quotes/228313444/composite CRBU -3.67% : Another example that looks attractive is Caribou Biosciences, which has its own version of the CRISPR platform. It is developing cancer therapies, including one that blunts the response of the immune system to improve the effectiveness of cancer therapies. The stock is down over 65% from highs last September.
2. Own innovators with intellectual property
“Value always rolls up to the owner of the IP,” says Jabusch, referring to intellectual property. Crispr Therapeutics and Caribou Biosciences serve as great examples. They have the CRISPR gene editing IP developed by Crispr founder Emmanuelle Charpentier and Caribou founder Jennifer Doudna. Both won the 2020 Nobel Prize in chemistry for developing this form of gene editing.
Here are three other examples of companies with exclusive IP that should benefit shareholders over the medium term.
Maxeon Solar Technologies /zigman2/quotes/220015328/composite MAXN +3.16% : This company has solar panels that squeeze more electricity out of the sun. They cost more, but they last longer, which offsets the higher cost. The company says its panels can last 40 years. The panels also outperform in partial shading and at high temperatures. Maxeon says its Maxeon 5 panels deliver 60% more energy than conventional panels. Maxeon panels are for businesses and homes. It says its Performance Line panels for utilities deliver 13% more power.
Canadian Solar /zigman2/quotes/205481506/composite CSIQ +1.87% : This is another company whose solar panel technology offers customers good bang for the buck, says Jabusch. Most of its manufacturing is in China, a possible risk factor if the geopolitical situation worsens.
ASML /zigman2/quotes/210293876/composite ASML -5.52% : Microchips are at the heart of major business trends, from artificial intelligence and the internet of things, to the cloud and sustainable energy. The big trend in semiconductors is a move to smaller chips with more power. This means cramming more transistors into less space.