Investing in Workplace Excellence

Proponents of progressive HR policies are firm in their beliefs that such practices benefit an organization's bottom line. Now, one mutual fund company is backing up that belief with impressive returns. Some other similarly selected funds, however, are not faring as well.

Is it wise to invest in companies that invest in their people?

At least one mutual fund company believes the answer is a resounding "yes" -- and is backing up that assertion with some impressive returns for its shareholders.

Launched in April 2005, the Parnassus Workplace Fund is thought to be the only public mutual fund that invests in companies based on their commitment to employees and the quality of their workplaces.

"I always felt that companies that treat their employees well do better than those that don't," says Jerome L. Dodson, president of Parnassus Investments in San Francisco and the investment manager for its Workplace Fund.

He decided to move forward with a fund that invested in companies with strong workplace practices after he was approached with the idea by Milton Moskowitz, co-author of the Fortune 100 Best Companies to Work For.

In addition to the workplace screening, Dodson looks for companies that are undervalued and demonstrate financial strength. "We try to examine each company closely and calculate their intrinsic value" and determine "what their earnings will be in the future."

Dodson believes the fund's ability to perform well even during an economic downturn rests partly on its practice of investing in companies with "financial strength" and avoiding "high flyers" that tend to get hammered during recessions.

So far, Dodson's approach is paying off for investors. As of May 14, the fund was up 22.1 percent, compared to 1.5 percent for the S&P 500. In 2008, the fund was down 29.94 percent, compared to a 37-percent decline for the S&P and a 38.8 decline for the Lipper average.

Morningstar, the Chicago-based investment research firm, gives the Workplace Fund its highest rating: five stars.

Since its inception, the multi-cap fund -- which is small in size, with just $22 million in assets -- beat the S&P and Lipper by roughly 3 percent and 4.2 percent, respectively.

"Managers get paid for picking stocks, and Jerry is known for doing a very good job picking them," says Eric Packer, an investment adviser with Progressive Asset Management, a Wellesley, Mass., subsidiary of Financial West Group, which focuses on socially responsible investments.

Admitting that it's a loose correlation, Packer believes that "good solid companies that are respectful and supportive of their employees through their employee practices are going to have more engaged employees and, in turn, outperform those that don't."

One of things that sets this fund apart from others, he says, is that it's not just doing the avoidance screens, but positive screens as well.

"They're looking for companies that come up on the Best Companies to Work For lists and saying, 'Let's invest here.' "

Dodson is quick to point out that, while he uses lists such as Fortune's Best Companies to Work For and Working Mother's Best Companies for Working Mothers as a starting point, he doesn't limit his research to them. Some companies, such as Southwest Airlines, are well known as great places to work, but opt not to participate in these competitions.

Conversely, Dodson says, he screens out companies that fail to meet the fund's ethical standards, such as NetApp, which recently agreed to pay the federal government $128 million to settle a contractor fraud controversy.

At present, the Workplace Fund's top 10 investments are Goldman Sachs, Google, Alcan, Whole Foods Market, Target, Texas Instruments, Citrix Systems, Corning, Baldor Electric and American Express.

Dodson, who founded Parnassus in 1984, says he sometimes will meet with HR executives at those companies he's considering for the fund to gain a better understanding of the HR practices of those enterprises. In addition to the Workplace Fund, Parnassus manages five other socially responsible funds.

Richard Beatty, a professor in the School of Management and Labor Relations at Rutgers University, doesn't dismiss the importance of workplace practices, but says the "real question from an investor's standpoint is how, where and who creates wealth and how well those positions are really managed."

"You can't necessarily make the assumption that because firms are doing well and engage in these practices, that these practices were responsible for creating an inordinate level of customer [satisfaction] and economic wealth," he says.

Beatty says the role of HR leaders should be to build organizations that score well on the scorecard of the business, not internal scorecards such as the Best Companies to Work For.

Dodson isn't the first person to focus an investment vehicle on the workplace. In December 2001, former American Society for Training and Development Vice President Laurie J. Bassi launched a private fund -- Smart Companies Portfolio -- that invests in companies that are committed to employee learning.

Managed by Bassi Investments in Bethesda, Md., that fund hasn't fared nearly as well as Parnassus. Between December 2001 and 2007, the portfolio trailed the S&P by 3.3 percent, according to the most recent data posted on the firm's Web site.

Two other Bassi portfolios, meanwhile, have had mixed results. Since its inception in January 2003 until December 2007, the Human Capital Portfolio beat the S&P by 7.3 percent, while the Human Capital -- Social Responsibility Portfolio lagged the index by 13.9 percent since its inception in March 2004 through the end of 2007.

Bassi Investments could not be reached for more current data.

Opel Bankruptcy Option May Not Be a ‘Strange’ Idea

When German Economy Minister Karl- Theodor zu Guttenberg this week said that an “orderly insolvency” may be the best rescue option for General Motors Corp.’s Opel unit, he drew fire from government colleagues.

Peter Struck, parliamentary leader of the Social Democratic Party, a partner in Germany’s coalition government, said Guttenberg’s idea is “very strange. Everybody knows what insolvency in Germany means: A company is bust and goes downhill.”

The debate over the best way to rescue the carmaker reflects Germany’s skepticism about using insolvency to revamp companies. The controversy comes as GM and Germany struggle to reach a deal to rescue the Ruesselsheim, Germany-based unit.

While Germany’s insolvency laws were overhauled 10 years ago to help distressed companies execute a turnaround, the procedure is often ignored, said Christoph Paulus, dean of the law faculty of Berlin’s Humboldt University.

“Germany introduced an instrument that is basically like the U.S. Chapter 11 proceedings and used in the right way you can do miracles,” said Paulus in an interview. “It’s a bit depressing to see that this hasn’t yet reached the level of common knowledge or at least not the level of knowledge among the decision makers.”

Merkel, Labor Unions

Chancellor Angela Merkel, seeking re-election on Sept. 27, is under pressure from lawmakers and labor unions to save 25,000 German jobs at Opel. The German government negotiated in Berlin until the early morning hours yesterday over Opel’s rescue, narrowing bidders for the unit to Fiat SpA and Magna International Inc. Talks are set to resume today.

Merkel and Guttenberg are in the Christian Democrat bloc.

While Guttenberg has said that a “planned insolvency” remains an option, Magna Chairman Frank Stronach told Bloomberg Television yesterday that it would be “irresponsible” to force Opel into insolvency. He said bankruptcy would make Opel a “dead horse.”

Bankruptcy “still carries a stigma, wrongly inferring that it will necessarily kill everything,” said Detlef Specovius, a partner at law firm Schultze & Braun specializing in insolvency. “In Opel’s case, a well-planed and well-structured insolvency may even bring about better solutions than a rush job involving vast amounts of state guarantees.”

SinnLeffers

Specovius advised his client SinnLeffers GmbH, a German fashion retailer, to file for insolvency in August and to use Germany’s insolvency-plan proceedings, the country’s equivalent of U.S. Chapter 11. The company was restructured and came out of bankruptcy in March.

Company management can stay in control during the proceedings, much like the “debtor-in-possession” model in the U.S. That approach was used to reorganize drugstore Ihr Platz GmbH, which was restructured in eight months. Berlin-based Herlitz AG, one of the first publicly traded companies to use the revised law, saw its court-supervised reorganization completed in about six weeks.

Detroit-based GM will file for bankruptcy in the U.S. on June 1, according to people familiar with the situation.

German companies that file for insolvency can get a government subsidy that covers wage costs for up to three months. Pension obligations can be transferred to a rescue fund, helping them get rid of what’s often an onerous liability.

If Opel files for insolvency, other German businesses would have to contribute to cover the carmaker’s pension obligations of 4.7 billion euros ($6.6 billion), Focus magazinereported, citing Martin Hoppenrath, head of the Mutual Pension Assurance Association, which runs the fund.

‘Options’

One reason the new law hasn’t been used widely in Germany is the country doesn’t have centralized bankruptcy courts, said Paulus.

Many judges aren’t insolvency specialists and haven’t become familiar with the new procedure. Insolvency lawyers are also reluctant to use the process because it means more work and a greater risk of liability, Paulus said.

“You have to look at the options rationally: Is it less costly do to it in court or is it better to stay out of court?” said Rolf Rattunde, an insolvency lawyer with Berlin-based Leonhardt Westhelle & Partner, which handled the Herlitz case. “An insolvency isn’t a cure-all, but rather a painful, if not potentially life-threatening treatment.”

While an insolvency at the automaker may dissuade potential car buyers who worry that they will lose service warranties, Germany shouldn’t rule out the option, said Rattunde.

“If you rule out the insolvency option, you pretty much raise the price you have to pay to convince any investor to step in,” said Rattunde. “If you tell them you won’t let Opel go bankrupt, they can just lean back and ask for more.”

Positive start for equities; RCom, Tata Motors lead

Equities opened higher on Friday on the back of advances across Asia and US. Secondline stocks were trading on a positive note as well. All sectoral indices posted decent gains with capital goods and metals in the forefront.

Bombay Stock Exchange’s Sensex was at 14439, up 143 points while National Stock Exchange’s Nifty was trading at 4357, higher by 20 points. Market breadth was extremely strong.

US stocks advanced overnight as rising oil prices drove up shares of energy companies and the latest Treasury auction eased worries over demand for government debt.

The Dow Jones Industrial Average was up 103.78 points, or 1.25 per cent, at 8,403.80, the Standard & Poor's 500 Index climbed 13.77 points, or 1.54 percent, at 906.83,
and the Nasdaq Composite Index rose 20.71 points, or 1.20 percent, at 1,751.79.

Asian stocks were also trading higher on the back of gains in mining companies after better-than-expected Japanese factory output report lifted copper prices. Chinese and Taiwanese markets were shut Friday on account of a trading holiday. The Nikkei edged 0.06 per cent higher, Hang Seng rose 0.38 per cent, Straits Times added 1.18 per cent and S&P/ASX inched up 1.44 per cent.

Indian market likely to see considerable volatility

The Indian market may open higher on Friday following favorable cues from the overseas markets. That said, the market might witness considerable volatility ahead of the announcement of the month-long national election results on Saturday.

While reports showing improvement in business confidence and other incipient signs of an economic revival may keep underlying sentiment firm, profit taking ahead of the weekend may result in choppy trading.

After making a net investment of Rs.4, 085 crore on Wednesday, foreign funds sold shares worth Rs.302 crore on a net basis on Thursday, provisional data released by the Bombay Stock Exchange showed. However, domestic financial institutions bought shares worth Rs.254.30 crore on a net basis.

Overnight, the major averages on Wall Street ended the session firmly in positive territory, as investors went bargain hunting following some recent weakness, shrugging off a report from the Labor Department showing a bigger than expected increase in first-time claims for unemployment benefits in the week ended May 9th. The Dow Jones Industrial Average closed up 0.56%, the Nasdaq Composite rose 1.5% and the S&P 500 index gained 1.04%.

The Labor Department said initial jobless claims rose to 637,000 from the previous week's revised figure of 605,000. Economists had been expecting jobless claims to edge up to 610,000 from the 601,000 originally reported for the previous month. A separate report released by the Labor Department showed that producer prices increased by a little more than expected in the month of April, partly due to a rebound in food prices.

A slew of economic data is scheduled to be released on Friday, including the Labor Department's report on consumer price inflation in the month of April. Economists expect consumer prices to come in unchanged after edging down 0.1 percent in March. Trading could also be impacted by the release of reports on industrial production, consumer sentiment, and regional manufacturing activity.

Meanwhile, the Indian ADRs closed mostly higher with the exception of Sterlite Industries. ICICI Bank surged up 6.19%, HDFC Bank rallied 3.95%, Reddy's Laboratories advanced 2.82%, Wipro rose 2.77%, Infosys gained 3.69%, MTNL added 2.41% and Satyam closed up 0.56%, but Sterlite ended down 0.98%.

The rebound on Wall Street overnight helped crude oil futures end higher on Thursday, but the gains were limited as a gloomy forecast for energy demand from Paris-based International Energy Agency weighed on sentiment. It said the rise in oil prices to a six-month high above $60 this week was due to sentiment rather than fundamentals. After settling at $58.62 a barrel in New York trading on Thursday, crude oil is now trading firm at $58.76 in Asian trading.

The rupee closed weaker at Rs.49.83/84 against the dollar on Thursday, weighed down by weakness in the stock market and a stronger dollar overseas.

The Indian market extended its loss on Thursday amid weak global cues and concerns that no single party/coalition will emerge a clear winner in the recently concluded general elections. Additionally, reports showing a further decline in exports in April and rating agency Fitch's warning that India needs to cut its budget deficit to avoid having its credit rating lowered, weighed on sentiment. After moving choppily in a range of 11,936- 11,696, the BSE Sensex closed off the day's lows at 11,873, down 147 points or 1.22%. Likewise, the S&P CNX Nifty recouped some of its loss to finish at 3,594, down 42 points or 1.15%.

Profit-booking drags down sensex by 324 pts

Market players said most of the frontline stocks look over-valued after the meteoric rise on Monday on UPA's poll wins, and expect further profit taking over the next few sessions. They also warned that the Indian markets are again increasingly aligning with the global markets.

On Thursday, sensex opened flat and went up marginally but soon profit taking pulled the indices down. Towards the end of the session, heavy selling pulled the sensex down to its intra-day low at 13,704 and it closed a tad higher from that level, at 13,734, down 324 points on the day.

On Thursday, a slew of major global markets slid on the back of indications from the US Fed that the world's biggest economy could shrink this year more than the anticipated. The growth warning led to renewed selling with Japan's Nikkie losing nearly 1%, Hang Seng in Hong Kong down 1.5% while most of the European markets were also trading lower.

The day's trading also reflected increasing investor interest for second rung stocks as they shifted from frontlines. While the sensex ended 2.3% lower and the Midcap Index ended flat, the Smallcap Index ended 2.6% higher.

Among the group A stocks, more stocks ended lower than gainers with 69 advances to 131 declines. Compared to this, among the group B stocks the ratio was tilted heavily in favour of advances: compared to 345 declines, 1,305 stocks ended higher, indicating investor preference for non-frontline stocks. The day's trading added about Rs 6,000 crore to investors' wealth with BSE's market cap at Rs 44.9 lakh crore.

In Thursday's market, PSU stocks were among the top gainers while those stocks which had gained substantially over the last three sessions witnessed substantial profit taking. Led by ONGC which ended 8.4% higher at 1,075, the PSU index ended 2.8% higher. On the other hand, L&T ended 8.6% lower at 1,243, Maruti closed 6.9% lower at Rs 971 and ICICI Bank ended 5.2% off at Rs 672.

Sensex poll vaults, crosses 14,000 mark

For the first time in the history of Mumbai Stock Exchange, circuit breaker was applied today to stop trading after just 30 seconds. This was done to cool down an over-heated market as a buying spree pushed the sensex up. When trading resumed after a two-hour gap at 11.55 am, it had to be stopped again after 30 seconds as the upward surge of the sensex continued.

The entire day’s trading lasted just one minute on Monday and the investors are estimated to have made Rs. 10,000 crore every second. Total market capitalisation of all the listed companies grew by about Rs. 6,50,000 crore---said to be the biggest gain in the history of stock markets, not just in India but in the world.

The market response was anticipated following the reassuring performance of the UPA alliance in the general election, promising stability and continuity. But while hope for reforms and faith in the ability of Dr Manmohan Singh to steer the government through the recession was expected to send the sensex zooming, the unexpected surge today left the investors gasping.

Today’s 2,111-point surge in the Sensex has forced even long-time bears to turn bullish and predict greater gains from the markets in the coming months despite fundamentals remaining unchanged.

“This (election) win is the ultimate game-changer for the country…this gives us a chance to climb our way somewhat out of the bear market…” Shankar Sharma, vice-chairman, First Global, was quoted as saying by a television channel. Only last week, Sharma warned investors about the poor fundamentals of the global economy.

Others are predicting a flood of foreign funds rushing into the markets propelling stock prices to further highs. Earning upgrades by various companies will follow over the medium term and liquidity will come into various sectors, Falguni Nayar, managing director of Kotak Investment Bank has been quoted as saying.

However, veteran players in the markets are warning small investors against being caught up in the frenzy and buying at highs. Incidentally, brokerages who put out reports saying RIL was over-valued at above Rs 1,800 a share have turned cautious as the scrip has breached the Rs 2,300-mark. Technical analysts, who chart the price of shares using various formulas, are now predicting further highs in the Sensex scrips to short-term traders.

“Retail investors who exited the markets after the crash were afraid to enter when stocks were quoting at attractive valuations in March last,” says Anil Wilson, a certified financial planner. People who bought frontline stocks and fundamentally sound mid-caps would have more than doubled their money by now, says Wilson. However, most retail investors chose to stay away in the margins. So did most mutual funds who were sitting on cash. “Most funds turned out a poor performance while the Sensex shot up from 8,000 points to 12,000 points,” says Wilson.

Some of the veterans point out that markets could go in for a sharp correction after the initial exuberance dies down. A few are warning of the markets correcting by as much as 20 per cent due to global and domestic factors.

Global Worries Hit Bourses; Sensex, Nifty Break Up

With weak worldwide markets activating a substantial sales event, the Sensex plunged over 650 points to 14, 347.89 as stocks moved into a tailspin in early trading on Bombay Stock Exchange (BSE). Stocks cutting across spheres have broken down on a reactive reaction to the declension in international markets.

At the moment, the BSE Sensex is down with a hefty loss of 622.19 points at 14,378.72. On the other hand, the NSE Nifty that went down to a low of 4171.15 came down with a arresting loss of 4.28 per cent or 187 points at 4183.20.

The market climate is so pessimistic that just a few stocks among BSE 'A' Group directed to make it to the constructive territory in opening trade.

The biggest loser in the Sensex is ICICI Bank, which lost about 6.65 per cent. The other stocks, which have lost between 5-6% include Bharti Airtel, Tata Steel, Reliance Industries, Reliance Communications, State Bank of India, HDFC Bank and Reliance Energy.

Tata Motors came down almost 5 per cent. ONGC, Larsen & Toubro, Hindalco, BHEL,Grasim Industries, Ranbaxy Laboratories, Infosys Technologies, Maruti Udyog, Bajaj Auto, HDFC, ACC, Cipla, Wipro, Tata Consultancy Services, Dr. Reddy's Laboratories, Hindustan Unilever, Ambuja Cements, ITC and Satyam Computers are down 2 per cent - 4.5 per cent from their last closing levels.

Sterlite Industries missed 7.75 per cent. The other stocks that have lost between 3% to 7% include SNL, Suzlon Energy, Nalco, IPCL, Tata Power, Zee Entertainment, Punjab National Bank, Siemens, SAIL, HCL Technologies, GlaxoSmithKline Pharma, Sun Pharmaceuticals, MTNL and BPCL.

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