As a financial advisor, due diligence is a constant part of my work. A good amount of time is spent researching funds on Morningstar, reading the ins and outs of a financial or insurance product, having conversations with wholesalers to discuss products, or doing a high-level review of a fund company. From time to time, I have the pleasure of being invited to a fund company's headquarters for a due diligence trip. I appreciate when companies take the time to host due diligence meetings because it not only allows me to hear from the fund managers directly, but I can get a really good feel for the company culture. Last week, I attended the Eventide Funds due diligence meeting in Boston, MA.
I was blown away. The meeting consisted of a day and a half of presentations covering topics ranging from their overall investment philosophy to their analysts describing the companies that they chose for the fund's portfolios. I learned things that were applicable to my financial practice, to my duties as a father, and to my personal life in general. Here are some key takeaways from the due diligence meeting.
Eventide's Investment Philosophy
"We believe high-quality companies that excel at creating value for others and trade at a discount to intrinsic value offer superior long-term risk-adjusted returns."
The trend in today's fund-investing world is to use low-cost index funds based on one assumption: most actively managed mutual funds aren't worth their fee because they either underperform or merely track their benchmark. That is the case for most mutual fund companies, even when they claim to have a unique product or a unique approach to their investing strategy. After learning about the actual process that goes into finding companies that conform to their investment philosophy, I can say with confidence that Eventide has a unique, competitive advantage as an actively-managed mutual fund company. First and foremost, if a company does not pass their biblically responsible investment criteria, it is not considered. They have a very robust screening process that involves getting info from seven different data streams and in-person due diligence meeting with company executives in order to completely understand what a company is doing. They don't stop there. In order to identify if a company is high-quality and if it creates value for others, they investigate a company's financials, its management, if it has any competitive advantages, and how it treats is stakeholders (think customers, employees, and anyone else the company interacts with). A company's treatment of stakeholders is especially important to Eventide because they believe that there is a high correlation to long-term outperformance if a company creates value for their stakeholders and not just their shareholders (people that own their stock).
Investing with your Values makes a difference
If I have been your advisor for any length of time, we have, at one point, gone over a story about a biblically responsible investing company that impacted the behaviors of a large corporation by bringing up ethical concerns of their shareholders. Money talks. Putting your money where your mouth and beliefs are shouts from the rooftops. The impact that I am referring to here is not some David-vs-Goliath story, but a story that will go by unnoticed to investors. One of the fund managers was discussing a company that he had found that created a treatment for infant muscular dystrophy or "floppy infant syndrome". This condition often leads to severe debilitation or death for babies because their muscles aren't developing. During the third clinical trial, the company ran out of spaces quickly and did not have any funding left to expand the trial. The fund manager telling the story said that he believed in the company's treatment so much that he took the steps to raise money for them so that they could expand the trial. He later met a gentleman at a conference whose first daughter had passed away from infant muscular dystrophy. His next daughter also had the condition and he attempted to get her into the third clinical trial that the company was conducting, but at that time, they were out of space. Several weeks later, he was notified that the clinical trial had more available space and was able to get his daughter in. Because of the treatment, his daughter is alive to this day and living a wholesome life. When the fund manager heard this from the man, he was floored. Investing in a company that promoted human flourishing made a monumental impact in this father's life and in the life of his daughter.
The importance of checklists, timeless wisdom, good processes, good systems, and discipline
This last takeaway is from a presentation done by Eventide's co-founder, Finny Kuruvilla, and is applicable to anything you do in life. I will have to write longer blogs that dive into each point that he made, but the key takeaway is that we need a framework if we are to do anything with excellence. As human beings, we often drift toward being complacent, non-disciplined, and unfocused, which often results in average or subpar results. In order to perform with excellence, we need to identify consistent metrics that we can track on a day-to-day basis that will give insight to our overall performance. Those could be things like how many people you have networked with per week, or if we give consistent, intentional praise to our children on a regular basis. In addition, we need to have checklists to keep us accountable so that we can get the results we want and avoid needless errors. Gaining the wisdom to identify timeless truths is another crucial factor in the pursuit of excellence. With it, we can create processes and systems that will work toward creating exceptional results. Having processes and systems aren't enough. If you are trying to climb a mountain and your gear consists of yarn and decorative carabiners, you are not going to climb that mountain very well compared to the climber who brought gear from the local outdoorsman shop. The processes and systems need to be curated to the results that you are trying to achieve and rigorously modified to be made more efficient over time. Lastly, having discipline and accountability to stick to your process and systems is crucial to get through hard times and rise above. Here is Finny's checklist.
1. Have a dashboard and checklist.
2. Identify what is timeless, what isn't, and what is contrarian.
3. Utilize a process likely to outperform; don't follow a gimmick.
4. You need a system that forces you to buy low and sell high.
5. Stick to your system, even through hard times.
In the early days, Eventide had a less diversified suite of mutual funds, relegating it to more aggressive investors. With the expansion of their team, they have been creating mutual fund products that are appropriate for a broader set of age ranges and risk tolerances. If you would like to see how Eventide fits into your portfolio, let's schedule some time to chat.