ThinkAdvisor.com | July/AugusT 2020

We spotlight Envestnet portfolio managers with strategies that produce

consistently strong results.

Shining in Exceptional

Times

By Ginger Szala and Janet Levaux

E nvestnet and Investment Advisor magazine are pleased to present the winners of the 2020 Asset Managers and Strategist of the Year Awards.

Now in its 16th year, this recognition program shines a spotlight on the work of high-conviction portfolio managers who demonstrate best practices of investment management.

As in previous years, the selection committee picked winners in each category using a systematic, proprietary and multi-factor methodology developed by Envestnet’s Portfolio Management Consultants group, Envestnet | PMC.

The qualitative and quantitative criteria used in the final selection includes firm profile, performance, tax efficiency, investment process and style, composite and customer service.

To be eligible for one of the Asset Managers and Strategist of the Year Awards, managers need $200 million in assets under management or more and three years of experience. Also, the strategies they lead must be broadly available on the Envestnet platform and open to new investors.

“In partnership with Investment Advisor, we are providing industry intelligence that empowers advisors to identify top-performing managers whose strategies can potentially bring their clients closer to achieving overall financial wellness,” said Tim Clift, chief investment strategist of Envestnet | PMC.

“Giving advisors a clear idea of what to look for when evaluating active managers is key to helping them improve outcomes for their clients,” Clift explained.

Due to the coronavirus, this year’s winners are receiving their awards as part of Envestnet’s Advisor Summit On-Demand. Envestnet also is honoring the winners of the fourth-annual Essential Advisor Awards at this virtual event.

Given to advisors who embody the values outlined in “The Essential Advisor” by Bill Crager and Jay Hummel, these 2020 awards are going to: Garret S. Wong of Ameriprise Financial in Anchorage, Alaska; Emmy Mastel and Jeff Benson of Prudential Advisors in St. Louis Park, Minnesota; and Martin James of Martin James CPA, PC/Martin James Investment & Tax Management in Mooresville, Indiana.

Getting a jump start of several hun-dred basis points on stock selection

beginning in the fourth quarter of 2018, Parnassus Investments’ Core Equity Fund racked up a 30.8% return in 2019, which led to its winning the Asset Manager of the Year award in the large cap U.S. equity category.

“Some of the seeds were sown in the selloff of 2018 with the trade war,” said CIO and portfolio manager Todd Ahlsten. “We used that weakness, that really big downdraft in the [2018] fourth quarter to establish very large positions in companies like Microsoft and Nvidia. We saw and took advantage of that downturn to really add some very nice pieces to the portfolio.”

Some of the bigger 2019 wins for the $18 billion strategy included Mastercard (with Microsoft, a “great long-term com-pounder”), as well as cloud computing and other technology stocks bought in 2018, such as Cadence Design and Synopsys, a designer of smart computer chips.

A pioneer in environmental, social and governance investing, the Parnassus team builds around its core technology stock strat-egy and looks for companies that design for the future. For example, John Deere was a major purchase in 2019.

“Those [iconic] green tractors have become data centers on wheels and are con-nected to a cloud computing network. In the spirit of ESG, it shows how farmers can use less water, less fertilizer and less pesticides,” said Ahlsten. “Technology can interact with the value of land for farmers to get return on capital. … The thesis here is looking for high-quality companies that are transforming for the future.”

The company also divested from fossil fuel stocks, though the impact on the Core Equity Fund was minimal. “From a busi-ness standpoint, we see fossil fuels as being less relevant in the future. Clearly there is a movement to renewables,” he explained, adding that fossil fuel firms

don’t have “wide moats and innovation.”Further, the team wasn’t “very good

at determining oil price direction, that’s not really our wheelhouse,” according to Ahlsten. Plus, the oil industry in general “has a wide range of outcomes … there’s a lot of debt and leverage around oil.”

The fossil-fuel move is one example of how the mostly employee-owned firm “has a skin in the game mentality,” says Ahlsten, who was named PM of the fund in 2001 and CIO in 2008: “We act like owners and think like fiduciaries.”

Rolling into 2020, the strategy outperformed the S&P 500 by 275 basis points in the first quarter, he says, largely due to “trying to focus on companies with essential demand and with strong balance sheets, like Clorox and Costco,” as well taking a stake in the digital software company Adobe Systems.

The firm also added Applied Materials, which builds semiconductor chips, and Micron, a memory chip manufacturer. Such firms help make data centers be more efficient and use less electricity. “It’s a play on innovation and energy,” he said.

The portfolio team thinks it will be a long way back to normalcy for the economy, “so we exited a couple longstanding holdings like Starbucks and Sysco Foods, the big food distributor,” explained Ahlsten. “We really hope the economy comes back, but we think restaurants could have a long road to recovery.”

Other changes made to the portfolio — tied to the pandemic and to longer-term economic trends — included selling American Express and dramatically reducing hold-ings in companies like Bank of America. For the Parnassus team, the overall view is that “the real economy will be a slow slog,” he said, “and there will be a lot of loan losses.”

— Ginger Szala

Large-Cap Asset Manager of the YearParnassus Investments Core Equity Fund

“We used that weakness, that really big downdraft

in the [2018] fourth quarter to establish

very large positions in companies like Microsoft

and Nvidia. We saw and took advantage of that

downturn to really add some very nice pieces to

the portfolio.”

Todd AhlstenTitle: Chief Investment Officer and

Portfolio Manager

Years with Parnassus Investments: 26

Years in Financial Services: 26

Investment/Asset Class Focus: Large Cap u.s. Equity

—Asset Management Firm:

Parnassus Investments

Firm Headquarters: san Francisco

Year Firm Founded: 1984

Number of employees: 55

AUM as of May 31, 2020: $30 billion

Reprinted with permission from the July/August 2020 edition of Investment Advisor © 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or reprints@alm.com. TA-07212020-454049

Important Information

There are no assurances the Funds will meet their investment objectives and or that their ESG strategies will be successful.

For the current holdings of the Parnassus Mid Cap Growth Fund, the Parnassus Core Equity Fund, the Parnassus Endeavor Fund, the Parnassus Mid Cap Fund and the Parnassus Fixed Income Fund, please visit each fund’s individual holdings page.

For current quarter-end standardized performance and disclosure information, please click here.

Performance data quoted represent past performance and are no guarantee of future returns. Current performance may be lower or higher than the performance data quoted. Current performance information to the most recent month-end is available on the Parnassus website (www.parnassus.com). Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original principal cost.

Before investing, an investor should carefully consider the investment objectives, risks, charges and expenses of a fund and should carefully read the prospectus or summary prospectus, which contains this and other information and can be found in our Literature and Forms section or by calling (800) 999-3505.

The Parnassus Funds are distributed by Parnassus Funds Distributor, LLC.