weiwentg (98.32)

Parnassus Small Cap buys Foxhollow

June 13, 2007 – Comments (1)

Parnassus is an SRI management firm. Their oldest, eponymous fund is the Parnassus fund, a large growth-oriented fund that has at times looked like a tech fund in disguise, has at times held a lot of cash, and has not performed well. Their best fund, imo, is Parnassus Equity Income. M*'s analyst covering the fund says he's not ready to recommend it yet, but it shows promise. Two of his chief complaints are that Parnassus' managers have at times gone to nearly all-cash, even though they haven't demonstrated the skill to consistently make those kinds of macro calls (very, very few managers have), and that Parnassus' analyst staff is thin and their reliance on interns is too high. Nonetheless, Dodson has shown promise, because PRBLX has performed quite well in the last two years.

 Parnassus has recently opened up small and mid cap funds. There are almost no good SRI mid and small cap funds. Pax World Balanced and Neuberger Berman Socially Responsive hold a lot of midcaps, and Winslow Green Growth is a small-growth fund that has performed very well (but is very volatile, and has a lot of alternative energy stocks that may not do so well going forward). However, Pax and Neuberger aren't pure offerings. Calvert and Citizens have small and mid cap funds that perform poorly and charge too much. Parnassus' entry into the field is welcome, although I don't regard them as completely proven just yet.

Anyway, I just found out that Parnassus Small Cap (PARSX) has a big chunk of the fund in Foxhollow, one of my picks and real holdings. It's down about 15% from when I bought it. Foxhollow is right now a one trick pony: it manufactures devices used in peripheral artery disease that excise plaque and are minimally invasive. The technology shows promise. They could possibly get to the point someday when they can use these for coronary artery disease, but that's speculation. And the devices show promise. However, this is the biggest way by far that Foxhollow earns its money, and it is vulnerable right now.

 I'm happy to keep a small position in Foxhollow. I think the potential rewards justify a small investment. Additionally, Merck owns 11% of the firm, has a seat on the board, and an exclusive agreement giving them the right to analyze tissue retrieved from SilverHawk procedures.