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Q&A: 10 Questions for Lori Keith of Parnassus Investments

The comanager of Parnassus Mid Cap discusses diversity and investments

Laura Lallos


Each issue of Morningstar magazine closes with “10 Questions,” a wide-ranging question-and-answer session with a proven investor.

Laura Lallos, Morningstar magazine’s managing editor, interviewed Lori Keith of Parnassus Investments in March 2017. Keith joined Parnassus Investments in 2005 and was previously a Parnassus research intern. She has comanaged Parnassus Mid Cap PARMX since 2008. That fund has been one of the strongest risk-adjusted performers in the mid-cap blend Morningstar Category, with a 5-star Morningstar Rating as of Feb. 28. Keith received her bachelor’s degree in economics from the University of California, Los Angeles and her master’s degree in business administration from Harvard Business School.

Q: Why should investors consider mid-cap stocks?

Keith: Mid-cap stocks have higher expected returns than large caps, with lower volatility than small caps. Mid caps are more seasoned than small caps—attracting high-quality management teams—but are still attractive as potential takeovers.

Q: You run a tight portfolio of about 40 names. What gives you conviction in a stock?

Keith: We perform a significant amount of work before initiating a position, including a deep fundamental assessment, extensive risk analyses, and a review of environmental, social, and governance factors. We look for wide competitive moats, increasingly relevant products and services, and strong management teams.

Q: Where are the best mid-cap opportunities today?

Keith: We’re focused on companies that can compound earnings over a multiyear period. We’re excited about the long-term growth prospects of industrials holdings such as Xylem XYL and Fortive FTV, which are poised to benefit from long-term secular trends, competitive advantages, and substantial free cash flow.

Q: Does Parnassus Investments consider diversity as part of its ESG process?

Keith: We fundamentally believe that companies with greater diversity on the board and management teams will deliver better financial performance over the long run. As a result, we actively discuss diversity topics with companies when appropriate. And if a company has no women on the board, we’ll vote against the re-election of the nominating committee.

Q: How has Parnassus Investments built an investment team that includes a fair number of women?

Keith: There is not a conscious effort to diversify the team, but we highly value diversity of thought and experiences. Through our formal intern program, we’ve attracted and retained multiple women.

Q: You comanage with Matthew Gershuny. What are the advantages of a team approach?

Keith: The team approach allows us to leverage our different backgrounds and areas of industry expertise. From a practical standpoint, we are also able to divide the day-to-day coverage of the holdings. All our buy and sell decisions are made jointly, and the comanager approach adds a checks and balances mechanism.

Q: Do you spend much time on the road visiting companies?

Keith: I spend a significant amount of time visiting companies on their home turf. Some of our greatest insights have come out of visits to less trafficked places, such as a cattle feed lot or a construction site. These field trips let us interact with customers and employees, giving us a deeper understanding of a company’s culture, customer relations, worker safety process, and operational capabilities.

Q: Do you explore local restaurants or order room service?

Keith: If I have the time, I prefer to explore local restaurants so I can experience local cultures.

Q: What restaurant should readers visiting San Francisco visit?

Keith: Kokkari is one of my favorites.

Q: What book is on your nightstand now?

Keith: Pressure is a Privilege by Billie Jean King. I’m reading this book to my 9-year-old daughter. I love the inspirational themes related to social justice, commitment to excellence, and gratitude.

This blog post is adapted from an article that originally appeared in the April/May 2017 issue of Morningstar magazine. Read the full article.

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