ESG Equity

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Inception Date: January  1, 2018

Investment Philosophy

The Fairpointe ESG Equity Strategy integrates structured ESG analysis with our bottom-up, fundamental valuation-based approach to investing.

We seek companies that adhere to principled corporate governance practices, are environmentally accountable and socially responsible. In our fundamental valuation-based analysis, we look for a compelling business model, effective management, financial strength, and attractive valuation. We prefer businesses with products or services that make their customers more efficient or profitable and are critical to their success. Our goal is to select companies with favorable ESG characteristics that are inefficiently priced relative to their earnings growth outlook over the next three to five years.

Investment Process

The ESG equity strategy incorporates a comprehensive evaluation of two key components: (1) ESG analysis, and (2) fundamental valuation-based analysis.

Ideas are generated from a variety of sources including: the investment team’s broad knowledge base, quantitative screens, discreet events such as short-term disruptions or spin-offs, conferences, and industry research and publications. The portfolio managers utilize the range of the Russell 1000 Index to define their universe, currently market capitalizations greater than $2 billion.

Our ESG analysis begins with an assessment of a company’s corporate governance practices. We believe that when good governance leads, responsible social and environmental actions follow. We have established an aspirational list of corporate governance best practices to guide our evaluation, examples include board composition, compensation of management and risk management.  While some companies may not meet all tenants, we look for those that exhibit good practices, are working to improve and place shareholders’ interests first.

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We also look for companies with keen awareness of environmental issues, such as climate change, scarcity of natural resources, waste disposition, utilization of clean technology, and that are committed to minimizing negative impacts on our natural environment. External research, such as MSCI’s ESG database, industry reports, SEC filings, and government websites are leveraged to gain perspective on critical risk factors that are unique to an industry.

For the social pillar, we seek companies that value their employees and treat them with respect by paying fair wages and providing appropriate benefits and training. We evaluate policies and records for employee health and safety as well as product safety. To assess risk and corporate behavior, we utilize a variety of resources including: MSCI reports, litigation filings, SASB reports, and industry data.

We engage with management teams to aid our evaluation and determination of each ESG factor.  Ratings for each pillar are determined, with consideration to a company’s performance on an absolute basis and compared to peers, and the trend in behavior.  Next, an overall ESG rating is established, with the governance pillar weighed more heavily.

Our fundamental valuation-based analysis is the other key component of our investment process.  We use a combination of quantitative screens and qualitative research.  We are looking for companies with the following characteristics:

  • focused business with topline growth and competitive advantages
  • effective management
  • financial strength
  • attractive valuation

We evaluate the following quantitative valuation criteria:

  • P/E to growth rate
  • price to revenue
  • price to cash flow
  • relative P/E

An integral part of our investment analysis for both ESG factors and fundamentals is engagement with management, and in some cases the board of directors.  Meetings and conference calls typically focus on issues related to the business outlook, market share/competitive positioning, and company strategy.

A recommendation for inclusion in the ESG portfolio can be made only after a company has received a favorable ESG rating and met our fundamental investment criteria.

Our ESG Commitment

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as of June 30, 2018

Top Ten Holdings*

  1. McDermott International
  2. Meredith Corporation
  3. Scholastic
  4. Wabtec Corporation
  5. General Electric
  6. Mattel
  7. Molson Coors Brewing
  8. Qualcomm
  9. IBM
  10. Dean Foods, Inc.

Portfolio Construction

Additional portfolio characteristics include:

  • Concentrated portfolio of 35-40 stocks
  • Sector weight maximum of 2.5x  benchmark
    (Russell 1000 Index)
  • 6% maximum position per holding


Mary L. Pierson
Co-CEO & Portfolio Manager

  • The University of Chicago, MBA
  • Northwestern University, MA
  • DePauw University, BA

29 years industry experience

Frances E. Tuite, CFA
Portfolio Manager

  • Miami University, MBA
  • University of Cincinnati, BBA
  • Certified Public Accountant

35 years industry experience

Thyra E. Zerhusen
Chief Investment Officer & CEO

  • University of Illinois, MA
  • Swiss Federal Institute of Technology, MS

41 years industry experience



as of June 30, 2018

Holdings By Sector*

Sectors % of Equity
% of
Russell 1000
Ratio to Benchmark
Consumer Discretionary 22.6 14.3 1.7
Consumer Staples 16.1 5.7 2.8
Energy 4.9 6.2 0.8
Financial Services 5.5 20.6 0.3
Health Care 14.4 13.3 1.1
Materials & Processing 0.0 3.3 0.0
Producer Durables 12.2 10.2 1.2
Technology 23.3 21.7 1.1
Utilities 0.0 4.7 0.0


  • P/E (forward 1-year) 14.0
  • P/Sales (forward 1-year) 0.8
  • Long Term Debt/Capitalization 48.8%
  • ROE 5-year Average  14.0%
  • Long-Term Earnings Growth Rate (5-years) 8.5%
  • P/E to Long-Term Earnings Growth Rate  1.4
  • Average Mkt Cap ($mil) $27,692
  • Dividend Yield  2.2%

 * This information is based on a representative account.