ESG is Portfolio Manager Frances Tuite’s Sweet Spot at Fairpointe Capital

February 2, 2021

Frances Tuite is part of the Investment Team of Fairpointe Capital, LLC, serving as Co-Portfolio Manager for the Mid-Cap and ESG Equity strategies, and is responsible for investment research for both strategies.

In addition, she manages the 1837 LP long/short equity fund, which she founded in 2000.

Prior to joining Fairpointe Capital, Ms. Tuite managed the 1837 Fund at RMB Capital and at Talon Asset Management (under the name Talon Opportunity Partners). Previously, she worked at Sirius Partners and Harris Associates as an analyst and portfolio manager, as a sell-side research analyst at William Blair & Company, and as analyst and Director of Research at Johnson Investment Counsel.

Earlier, she was employed at Procter & Gamble in their financial management training program.

Ms. Tuite received a B.B.A. from the University of Cincinnati in finance and accounting and an MBA in finance and accountancy from Miami University in Oxford, Ohio. She holds the CFA designation, is a member of the CFA Institute and the CFA Society of Chicago and has passed the Certified Public Accountant examination.

She is a member of the Chicago Finance Exchange, an invitation-only organization for senior women leaders in finance, and a member of International Women Associates, which pursues global understanding and universal human rights.

She serves on the Steppenwolf’s Directors Circle, and as an Advisor to Recovery on Water, a non-profit focused on rowing for breast cancer survivors. She’s been a competitive rower for over 40 years and rides her bike to work every day in Chicago.

In this 2,965 word interview, exclusively in the Wall Street Transcript, Ms. Tuite details her investing philosophy and shares some of her highly recommended ESG stocks with our readers.

“We are headed up by Thyra Zerhusen, CEO and CIO, who’s been leading the strategy since 1999; she has focused on the midcap space for a long time.

She and I worked together in 1999 for four years, and then went separate ways, so rejoining her has been pretty straightforward since we have had a history together. The bulk of the assets in the firm have always been in the Mid-Cap strategy with a core approach.

I joined Fairpointe to assist in running an ESG strategy that we incepted at the beginning of 2018, something that we talked about last time and that I’ve always been very passionate about.

I also brought with me a small, long/short U.S. equity hedge fund.

My roots are in value investing, but value not in the sense of book value but in the sense of looking at intrinsic value — I was at Harris Associates for many years — and just thinking about businesses and what they’re really worth and also looking for a very attractive risk versus reward.

So trying to protect the downside and yet look for interesting upside. I think what has differentiated us, and my career, has really been our long-term focus and low turnover approach, with a concentrated portfolio of companies that are either misunderstood or undiscovered by the market for various reasons.”

Frances Tuite specializes in ESG stocks with a valuable upside opportunity:

“…The strategy is really looking for turnaround situations, or maybe a company that is spinning off a segment, or where the market hasn’t fully appreciated a restructuring or a change that a company is going through, or where we believe the market has a different view on the outlook for the company’s products or services — that’s always been our approach.

Both portfolios are concentrated. The Mid-Cap strategy generally has 40 to 50 names.

The ESG strategy has around 40 names, so that’s more concentrated even than Mid-Cap.

We generally overlap in the two strategies in terms of names, and we’ve always been involved in governance as a firm and voting proxies, so the G part of the analysis has been with us a long time.

I brought more process to the due diligence on both environmental and social issues. So we do apply ESG principles to both strategies, but the ESG has more constraints than the Mid-Cap.”

One of her favorite ESG stocks is female led re-bar manufacturer:

A company we bought that you might not think of as an ESG name is Commercial Metals (NYSE:CMC), which is a steel company. While it does have a carbon footprint, it produces steel from 99% recycled inputs.

The company takes scrap metal and melts it, but uses an electric arc furnace versus a coal, iron ore or blast furnace, so it is a lot more energy efficient. They are also ahead of the curve in terms of recycling their water.

Commercial Metals is led by a female CEO, which is unusual in the steel industry. When we initiated the position, they actually had a female CFO, but she has since retired. The company’s board is also well diversified.

Re-bar is the majority of their products, so it’s a necessary item to be used in this economy.

Rebar is used in highways, bridges and construction of buildings. Certainly, our bridges need repair, as do our highways.

So here you have a company that you might, on the surface, say, OK, steel, metal company, how can that be a good ESG name?

But we took a more pragmatic approach to our assessment of the company and what it was doing and how it was conducting its business. We consider ESG factors as risk issues, and we didn’t see significant risks to their business from their management or operations.”

Frances Tuite, the ESG stock specialist, has some interesting niche product company investments:

“…A really interesting health care name called CONMED (NYSE:CNMD), and it’s a $3 billion market cap company, so pretty small for most funds. We bought the stock in July when it was $2 billion in market cap.

CONMED makes instruments for orthopedic and general surgery.

Because of COVID, the stock got knocked down as hospitals were not doing any surgeries for a period of time. Their earnings were under pressure, but the stock looked very attractive to us. The company had done an acquisition at the end of 2018, so the balance sheet had some leverage on it and the market this year hasn’t liked levered companies for the most part.

The acquisition they made in 2018 was very interesting.

The company was Buffalo Filter and it manufactures a tool that is used in surgery, especially minimally invasive surgeries. For example, when you cut the skin you use a laser, and during that process smoke is generated.

That smoke can be the equivalent of 30 cigarettes for the health care workers in the operating room if they are not doing anything to control it.

This tool evacuates the smoke, protects the health care workers, and is now being regulated and mandated in some states. Buffalo Filter has 80% market share and it’s growing over 20%. CONMED is not a household name and Buffalo Filter products are a small niche market that is growing rapidly.

The smoke that is given off can be carbon monoxide, it can have carcinogens and it can have contaminants from the body of the person being lasered.

From an environmental perspective and also health care worker, these products play an important role. We were able to buy this company during this period of COVID concern and it’s been a huge win for the portfolio.”

Get all of Frances Tuite’s ESG stocks by reading the entire 2,965 word interview, exclusively in the Wall Street Transcript.