Hari Balkrishna seeks financially strong companies that make a positive environmental and/or social impact.
Hari Balkrishna, manager of T. Rowe Price Global Impact Equity Fund (TGPEX) , believes in doing well by doing good.
That’s how he came to a fund that focuses on companies with a positive environmental and/or social impact.
These companies tend to have strong growth, so it’s possible to beat mainstream indexes by investing in them, Balkrishna says.
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He’s particularly attracted to the health-care industry and industrials. And he especially likes stocks in the U.S. and emerging markets.
The fund started up only a year ago — March 15, 2021 — so there’s no long-term performance data.
For the 12 months through February, the fund returned a negative 6.1%, compared with negative 8.3% for its benchmark, the MSCI All Country World Index Net.
Here’s what Balkrishna has to say about his fund and impact investing in general. His stock picks appear below.
TheStreet.com: What is your investment philosophy?
Balkrishna: Delivering positive environmental and social impact along with a financial return. Companies with positive impacts also have better top- and bottom-line growth prospects. Environmental impact includes renewable energy, and social impact includes reduction of inequity.
The market underpays for earnings of these companies. By investing in them, you can outperform mainstream benchmarks because they have better growth prospects [than other companies].
TheStreet.com: What attracts you to impact investing?
Balkrishna: On a personal level, I have a global background and passionately believe in solving climate change with market forces. Financially, companies that deliver positive impacts are the ones with the wind at their sails. They have growth.
Consumers want renewable energy, and companies want [a reduced carbon footprint]. Impact companies are a sector of the market that’s ripe for generating alpha [return] on a multiyear time horizon.
TheStreet.com: What kind of environmental and social impact do you expect to achieve?
Balkrishna: On the environmental side it includes reducing greenhouse gas and increasing renewable energy. It’s improving the ecosystem: land, water and air.
On the social side, financial inclusion is a big issue. In emerging markets that includes the retail and microfinance sectors. Also, technology companies make it easier for small business to thrive.
Health care is another important industry. Health insurance, physical safety and cybersecurity are significant issues.
Hari Balkrishna, portfolio manager at T. Rowe Price
TheStreet.com Do you think impact investing can boost returns?
Balkrishna: Absolutely, over time impact investing can do better than mainstream benchmarks, as I indicated above. It has a more fertile business model, better top- and bottom-line growth prospects. Of course, you have to choose your stocks well — good management teams, etc.
And there will be periods like 2022 when oil and gas have the market leadership. So it was hard to keep up. But in the long run, you can boost returns.
TheStreet.com: What industries and geographies do you find attractive now?
Balkrishna: For industries it’s health care and industrials. Those are our two biggest sectors. Health care is most exciting. In the 2020s, it could be like technology in the 2010s. There’s unprecedented innovation: things like cell therapy. And stocks are at reasonable prices.
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As for industrials, from an environmental perspective they offer a lot of solutions for a better future. A company like Trane Technologies (TT) – Get Free Report provides efficiency in HVAC [heating, ventilation and air conditioning].
Also, the near-shoring and reshoring of companies means industrials can be a key part of the solution. [The reshoring trend is companies returning manufacturing operations to their home countries.]
Looking at geography, the U.S. is very attractive. That’s where the lion’s share of health-care innovation is. It’s easy to invest in green technology, thanks partly to the Inflation Reduction Act. About 60% of our fund is invested in the U.S.
Emerging markets have the tailwinds of demographics and growth. There are great opportunities for financial inclusion. [Among our favorites are] India, Indonesia and the Philippines.
TheStreet.com: Can you name a few of your favorite stocks?
Balkrishna: 1. Danaher (DHR) – Get Free Report, [a group that includes scientific equipment manufacturing]. It enhances the pace of health-care innovation, including tools for biotechnology. The company can deliver high-single-digit revenue growth for some time, along with low-teens earnings growth.
2. HDFC (HDB) – Get Free Report, one of India’s largest private banks. It’s well managed and has 55% of its accounts in semiurban and rural areas. It can grow book value at an annual rate of 15% to 20%, and return on equity in the high teens.
3. Ingersoll Rand (IR) – Get Free Report, one of the largest players in the compression industry. Its products boost energy efficiency in industrial settings. It can help reduce carbon emissions. It has a midteens multiple and a reasonable price. You can pencil out doubledigit returns from here.
4. Nubank – (NU) , a digital-only bank in Brazil. It’s taking over the financial landscape there. It targets the mass market, enabling financial inclusion. It has a reasonable valuation and makes over 30% return on equity annually. It can compound revenue growth well north of 30% for a long time.
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