Fund name: Pax World International (PXINX)

Objective: The International Fund seeks long-term growth of capital by investing primarily in equity securities (such as common stock, preferred stocks and securities convertible into common or preferred stocks) of non-U.S. issuers. The fund is, beyond that, utterly unconstrained by concerns about style (value vs growth), level of concentration (focused vs diversified), market capitalization, or region. Part of portfolio selection is driven by conventional security analysis (valuation factors such as price-to-earnings ratio; price-to-book ratio; and/or price-to-cash flow ratio; a healthy balance sheet; overall financial strength; and catalysts for changes that improve future earnings prospects) but part is driven by a series of environmental, sustainability and governance screens.

Manager: Ivka Kalus-Bystricky has managed the fund since inception. Prior to joining Pax, she was a Senior International Portfolio Manager with State Street Global Advisors (2004-08), with Baring Asset Management (2003-04), and with Independence Investment (2000-03). She has an MBA from INSEAD, one of the world’s leading business schools, an M.A. from the Fletcher School of Law and Diplomacy and a measly B.A. from Harvard University. She also speaks five languages (Czech, French, English, Spanish, and German)and helped restructure the Czech corporate sector.

Management’s Stake in the Fund: Between $100,001 - $500,000, as of December 31, 2008.

Opening date: March 26, 2008.

Minimum investment: $250 for all account types.

Expense ratio: Expenses for the individual class are capped at 1.4% through at least December 31, 2011. Assets currently stand around $2.4 million (as of 3/31/2009).

Comments: Pax has long been known for successful, shareholder-friendly (low minimum, low expense, high involvement), socially-responsible investments. They would like to change that perception. They intend to be about sustainable investing, rather than socially-responsible investing.

Here’s their argument: socially-responsible investing (SRI) was a sort of analytic morass. It was defined negatively (that is, by what you couldn’t invest in) rather than positively, which meant that every SRI discipline (depending on whose values informed the exclusions) varied from every other discipline. That meant that it wasn’t possible to make meaningful financial comparisons between strategies. On top of it all, SRI investing was only tenuously linked to financial performance.

Sustainable investing, on the other hand, can be rigorously defined, tightly linked to desirable financial outcomes, and still tightly linked to desirable ecological and social outcomes. Joe Keefe, Pax’s CEO, argued in the spring of 2009 that "There is mounting empirical evidence that companies with better corporate governance practices carry less risk and outperform poorly governed companies over time; that companies with strong environmental performance carry less risk and outperform environmental laggards over time; that companies with good workplace practices enjoy higher productivity, higher morale, lower turnover and increased profitability" ("Going Green: From the White House to Your House," GreenMoney Journal, Spring 2009).

His claim is substantiated by a bunch of rigorously peer-reviewed academic and corporate research. Pax directs potential investors to a wealth of research:

The problem (for society) and the advantage (for Pax) is that most professional investors pay little or no attention to this research or ESG issues. As a result, there ends up being considerable mis-pricing of the equity of firms with good sustainability profiles. That is, their economic advantage is recognized only slowly by most investors. Getting there ahead of the crowd, Kalus-Bystricky argues, "is what differentiates the Pax World International Fund from our competitors. Being on the cutting edge of identifying sustainable international ESG themes will become an increasingly important competitive advantage for the Pax World International Fund as the market recognizes that companies with solid ESG strategies tend to deliver superior financial performance over the long term." At the same time, she believes that ESG screens filter out some of the biggest long-term losers: companies whose practices will be heavily-regulated or banned and whose past behavior will land them in court.

While this fund is young, its early returns are promising. It has outperformed Vanguard’s Total International index fund in four of the five quarters of its existence. And it has placed in the top 10% of international core funds so far in 2009.

Bottom Line: Humanity is involved in a painfully high-stakes game with the global environment, and will remain involved for the remainder of this century. Issues of environmental and financial sustainability will, I suspect, drive the fortunes of individual corporations and entire industries. And the speed with which those fortunes are made or lost may well accelerate. For those of us hoping to make money in such turbulence, it makes some considerable sense to get ahead of the crowd rather than being swept along by it. Pax World International may well provide that opportunity.