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Assessing the 2017 LATINA Style 50 Report

Investing in Diversity: Why it Makes Sense.

Written by Paul Roldan, Senior Partner
Allgen Financial Advisors, Inc

Uncertainty is prevalent in the United States as we’ve witnessed a change of presidential administration, worldwide violence, racial tensions, and challenges to traditional pillars of this country including diversity and inclusion. The questioning of value when it comes to diversity of thought and culture has infiltrated all societal institutions including government and education. Yet, in the midst of uncertain times throughout recent history, LATINA Style continues to challenge the world with its claim that investing in Latinas makes sense on all societal fronts.

Since 1998, LATINA Style has recognized companies that are committed to diversity and inclusion in their respective workforce, especially those that provide career advancement opportunities for Hispanic women. Each year, LATINA Style chooses 50 companies (LS50) via an extensive survey as being the most sensitive to Latinas’ needs and goals in the workplace and that provide the best career opportunities for Latinas in the U.S. Since 2001 we have tracked the stocks of the Top 50.

Using moral or values based criteria to invest has been attempted via “socially responsible funds” (investment funds that use certain value or moral principles to invest, such as not investing in casinos or tobacco companies). This type of investing, however, has been critiqued as underperforming the stock market at large due to limited availability of investment options for investors. While potentially satisfying an investor’s quest to promote a moral or philosophical value, investments are ultimately judged by performance or total return.

LATINA Style challenged this critique by commissioning Allgen Financial Advisors, Inc. (www.allgenfinancial.com) a Registered Investment Advisory Firm based in Florida, to test and compare the returns of companies in the LS50 to the stock market at large. Using the S&P 500 index to represent the market at large, Allgen Financial Advisors, Inc. compiled yearly returns of the S&P 500 vs. yearly returns equally allocated among the LS50 for the respective years.

The S&P 500 gained 11.96% in 2016. Comparatively, an investment in the LS50 would have increased by 25.98%. When aggregated with hypothetical performance of the index and real returns of the S&P 500 since 2001, the chart below shows the LS50 outperforming the S&P 500 over that time period overall. The yearly average for the LS50 was 10.63% better than that of the S&P500 from 2001 through 2016. In real dollars, a $100,000 hypothetical investment in the LS50 in the beginning of 2001 would have resulted in a final account balance of $402,953 while an equivalent investment in the S&P500 would have resulted in a final account balance of $232,791 at the end of 2016. That represents a 73% positive cumulative difference ($170,161 more) for an investor choosing to invest in the LS50 index versus the S&P500.

Average Annual Real Return since 2001*
LS 50 Index 18.93%
S&P 500 8.3%

 

As seen in the graph, investing in the LS50 for this period would have more than quadrupled an investor’s initial investment whereas a similar investment in the stock market would have doubled the initial investment. This performance takes into account that the LS50 underperformed the S&P 500 five times during the 16 years studied. Yet, even with these underperforming years, longer term returns have consistently shown the LS50 outperforming the S&P500 index overall.

While the analysis is by no means comprehensive in that there are multiple other variables to consider when making investment decisions, it does provide an interesting consideration in a time when the value of cultural diversity is being questioned. As such, these results have affirmed again that investing in companies that live out responsible, social practices, as do the LS50, can be morally beneficial while financially prudent.

Paul Roldan is a senior partner at Allgen Financial Advisors, Inc.

For more information visit: www.allgenfinancial.com or contact him at roldan@allgenfinancial.com

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Disclaimer
*This analysis is based on available data at the time of analysis. Some company performances have been omitted as they no longer exist or were not publicly traded. This analysis and returns are also based on a yearly rebalancing of the portfolio to take into account the different companies that are chosen as part of the index each year and an equal weighting of each company. In addition, the measured performance and conclusions derived therein reflect a retrospective look at market performance as the study is conducted after the companies have been selected. It is never prudent to invest based on historical stock performance alone. In addition, the LS50 index is not a real market index but rather a dynamic collection of companies as chosen yearly by LATINA Style magazine. The rates of return and performance illustrated do not reflect any costs associated with investing in either index.

As such, the above article should not be construed, nor is it written to provide financial advice as individual situations may vary and past performance is not indicative of future results. Any decision to invest in equity markets should be consulted with a financial professional.