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Quarterly Newsletter!

2nd quarter 2013

The Economy

small sv logo With temperatures unfamiliarly hitting 100 degrees here in Northern California to end the quarter, it’s safe to say that the weather is a bit hotter than the past few week’s market performance. That being said, this year’s performance is nothing to sneeze at. The close of this quarter marks the S&P’s strongest first half in more than 10 years reaching record highs in May.

For the quarter, the S&P 500 gained 2.4 percent and the Dow slightly behind gaining 2.3 percent. The NASDAQ came out strongest with a 4.2-percent jump up for the quarter. Corporations brimming with cash have responded by paying higher dividends and we thank them for this. However, there are some headwinds to face. Consumers still remain under pressure to make any major purchases, employment, though improving, still is nowhere near where it should be, and higher mortgage rates will either create more “fast” buyers or slow down the housing recovery. Internationally, China could be on the precipice of a big credit squeeze as years of relying on a massive debt to finance massive projects (think of huge empty shopping malls and empty highways) and this most likely will push global growth down considerably. Remember, China is the world’s second largest economy behind the U.S.

What seems to be catching a lot of press is Mr. Bernanke’s statement saying that if the economy continues to strengthen, the central bank would start reducing its monthly bond purchases later this year. Overall, this is a good thing, as it shows signs of stabilization and eventually the economy should be strong enough to not rely on these “band-aid” measures. Mr. Bernanke said unemployment would have to be at about 7% when the Fed brought the bond-buying program to a close. The jobless rate stood at 7.6% in May.

The bond market is starting to show signs of a downturn as the Barclays U.S. Aggregate Bond Index suffered its worst quarterly setback in nine years.  With Treasury prices falling and bond yields rising, the era of steady rising bond prices may be nearing an end. As bond yields rise, this can eventually pose a problem for stocks as it may provide a more attractive option. Bonds remain a very important part of an investment portfolio because they can provide capital preservation, income and diversification but we must always be prepared by creating a diversified bond ladder and not attempting to time the markets or interest rate movements. As Yogi Berra once said, “It’s tough to make predictions, especially about the future.”Overall, investors should be pretty pleased with the first half of 2013. Volatility will still reign over the 2nd half of this year as these big macro issues are confronted. By keeping a steady pace and staying diversified across sectors and asset classes, the volatility will be much easier to face. 

Companies Committed

Ecolab and Dirty Water

The discovery of shale gas in the undergrounds of the US has led to a natural gas boom. In order to get to this natural gas, big energy companies have started fracking.  The process of fracking is one that would make most people cringe (Take a look at this infographic of the process here ( .

In years past, it took just 1 barrel of water to get 10 barrels of oil, but generating a similar amount of shale-gas energy requires five times that amount due to fracking.  As millions of gallons of H20 are forced into the ground in order to lift the natural gas out, contamination becomes inevitable. A large portion of the water remains underground, but the remaining water becomes heavily toxic with methane concentrations almost 20 times higher than normal water. 

Though definitely not the end-all answer, one company that is addressing the issue of water treatment is Ecolab.  This Minnesota-based company provides cleaning and sanitizing products and programs, equipment maintenance and repair services primarily to customers in the foodservice, food and beverage processing, hospitality, and healthcare industries. Ecolab’s recent purchase of Nalco makes them the leader in the treatment of fracking water. This same company helped clean up the BP Gulf of Mexico oil spill in 2010.

 Chipotle Mexican Grill and Local Petaluma Cheese

 Chipotle, a chain of over 1200 restaurants in the U.S., is revolutionizing the fast food industry by sourcing from organic farms. It serves 100% free-range chicken and pork, about 60% beef, rBGH-free dairy products, and organic produce and beans. Their goal is to offer a completely sustainable menu as soon as they can build the supply chain to meet their demand.

Though quickly becoming a large chain, Chipotle has teamed with local farmers to bring in product. Local cheesemaker, Petaluma Creamery, produces up to 150,000 pounds of cheese for all Chipotle restaurants throughout the Pacific region.The partnership between Petaluma Creamery and Chipotle Mexican Grill has produced jobs for the region. “Chipotle was looking for food with integrity, produced by people who are passionate about what they do,” stated Larry Peter, owner of Petaluma Creamery, a local landmark on Western Avenue since it was established in 1913 as a co-op with 33 farmers producing bulk cheese.


Self Employed? SEP IRAs May Be Your Friend. 

Are you self-employed and looking to sock away some hard earned money into a retirement plan but don’t want to pay absurd fees to do so?  Well, a SEP IRA may be for you.  A SEP IRA is a type of traditional IRA for self-employed individuals or small business owners. (SEP stands for Simplified Employee Pension.) Any business owner with one or more employees, or anyone with freelance income, can open a SEP IRA. Contributions, which are tax-deductible, go into a traditional IRA held in the employee’s name. Employees of the business cannot contribute – the employer does. Like a traditional IRA, the money in a SEP IRA is not taxable until withdrawal.

A SEP lets you directly deposit up to 25 percent of a worker’s income into an IRA. They’re much easier to set up than a 401(k) because they have no IRS filing mandates. With traditional 401k plans running upwards of $1500 to set up, many small business owners can’t afford that upfront fee.  Contributions can vary each year between 0% and 25% of compensation (maximum $51,000 for 2013) and each eligible employee must receive the same percentage. 

If your business is starting to see some positive cash flow and you are tired of seeing your savings get zapped from bad spending habits, then throwing some money into a SEP IRA may be a wise decision to prepare for having some spending money during those retirement years. And make sure that your employer retirement plan is offering sustainable and responsible fund choices. If it doesn’t, be sure to ask why not. 


Shareholder Activism

Sustainvest Soon to Voice Concern
At Sustainvest, we are committed to pushing companies to improve their sustainability initiatives. As owners of these publicly traded companies, we have a right to voice concern. Shareholder activism is the process of dialogue with corporations to generate investor pressure on corporate executives.  This process educates the public on environmental, social and corporate governance issues. This can be used as an effective tool to encourage corporations to change their policies. We will be filing several shareholder resolutions this year so stay tuned.

Kudos to Dunkin Donuts and As You Sow dunkin

Due to shareholder pressure from non-profit As You Sow, Dunkin Donuts will be phasing out foam cups in the next 2-3 years and will be testing a new eco-friendly cup with recycled content.  As You Sow has been pressuring Dunkin in the last 2 years to implement recycling of its beverage packaging and due to shareholder activism pressure, it seems as if it is paying off.

Dunkin Brands Group is an East Coast mainstay serving sugary fried donuts and cream-laden coffee.  It has plans to expand on the West Coast opening an additional 360 stores this year.  Though not the healthiest of foods, Dunkin’s attempt to stop the use of foam cups should be seen as a step in the right direction.

Urban Outfitter CEO’s Wife Vote to Board an Insult

When it comes to corporate governance, Urban Outfitters just is flat out clueless. In 2011, a shareholder proposal at this clothing chain requested a report on board diversity.  It received 22% in favor of.  In 2012, another proposal asked them to commit to a policy bringing in women and minority candidates to the board.  This proposal received 38% in favor of.  Because of the high vote, Urban Outfitters decided to bring in a female board member.  But the problem here is this board member is Margaret Hayne, the wife of CEO Richard Hayne (a scene from Arrested Development and the clueless Bluth family keeps entering my mind).  Apparently, son of the family, David Hayne is an executive of the company as well.  Board diversity is an issue that many shareholders are searching for and in Urban Outfitter’s case, is not being addressed in the right manner. 

Non-Profit of the Quarter

Global Exchange

In 1988, Medea Benjamin, Kevin Danaher and Kirsten Moller founded Global Exchange. The formation of the organization was rooted in the increasing interdependence of national economies and the need to build alliances across national boundaries to protect the economic, social and political rights. Global Exchange has been involved in many successful campaigns.  From launching a Fair Trade coffee campaign convincing Starbucks and Procter & Gamble to offer Fair Trade to founding Green Festival (the largest sustainability event in the world), this non-profit has worked endlessly to promote social, economic and environmental justice around the world.

Ever wanted to travel to a remote location like Uganda or Cuba and learn about what really happens, as opposed to being stuck in some fake tourist trap?  Reality Tours offers over 100 delegations a year to over 40 destinations that address contemporary political, economic, environmental, and cultural issues around the world.

Thanks for reading Sustainvest’s quarterly letter! 


Dale Wannen


Sustainvest Asset Management, LLC

Contact Info:

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The information contained in this letter has been prepared from sources we believe to be reliable, but we make no guarantee as to its accuracy.  No information herein is intended as an offer or solicitation of an offer to sell or buy or as a sponsorship of any company or entity. Opinions expressed herein are subject to change without notice. The writings of authors do not necessarily represent the views of Sustainvest Asset Management LLC. There are certain risks involved with investing.