The lightbulb went on for Mark Langerman in 2007. The Scottsdale-based financial adviser was at a Washington, D.C., symposium sponsored by the American Israel Public Affairs Committee, listening to workshops on encouraging state legislatures and pension funds to divest their portfolios of investments in Iran. Langerman heard Benjamin Netanyahu, then the opposition leader in Israel, speak eloquently about how pressure from U.S. investors could force companies to pull out of Iran and make it harder for that country to pursue agendas of terror and nuclear proliferation.
“I’m listening to hundreds of people react the same way I did, with shock, and say, ‘I’m going to call my mutual fund, and I’m going to divest,’ ” recalls Langerman, now managing director and chief executive officer of Empowerment Financial Group, LLC, in Scottsdale. “I realized right then that there’s nothing out there that people can do. If you go to a shareholder meeting and tell them to sell XYZ, who happens to be building oil refineries in Iran, they’re going to say, ‘Sorry, we’re not going to do that.’ ”
When Langerman returned to Arizona, he scoured his own portfolio and that of a concerned client and found that every fund held stock or bonds in one or more companies that did business in Iran. Both men purged their holdings of Iran-connected investments.
To replace them, Langerman began looking for a mutual fund that held no investments in companies that did business in Iran. He came up virtually empty and began working on what would become the concept of terror-free investing and the Patriot Fund.
Today the Patriot Fund has more than $12 million in assets, and its top holdings as of the second quarter included name brands such as American Express, Google, The Gap, MasterCard and Qualcomm. The fund is part of the Ascendant Funds family, to which nearly every brokerage in the United States has access, Langerman says. To get his lightbulb moment to this point, Langerman spent more than a year researching companies that operated in terrorism-connected nations and talking to investment research services about how to screen them. The more he learned, the more his scope broadened beyond Iran to include countries the U.S. State Department has deemed “state sponsors of terrorism,” or countries the department says have epeatedly provided support for acts of international terrorism. At that time, that list comprised Iran, Syria, Sudan, North Korea and Cuba. Langerman broadened his scope to screen out companies with any active, non-humanitarian business ties with those countries.
“There were about 700 companies globally that did business with those countries. This is meaningful business – banking, medical, manufacturing, automobile, oil services,” he says. “Without Western businesses, their economies would likely fail, and if nothing else, it would make it much harder for them to finance their terror activities.”
By mid-2008 Langerman was screening companies and partnering with two boutique firms to oversee separately managed accounts. Persuading investors to leave their familiar brokerages, however, proved a tough sell. In 2011 Houston-based Ascendant Funds listened to Langerman’s idea and agreed to a partnership creating the Patriot Fund. They use Conflict Securities Advisory Group, Inc., a Washington, D.C., research and consulting firm, to compile the database of publicly traded companies that have business activities in or with terrorism-sponsoring nations. On March 1, 2012, Ascendant’s Patriot Fund officially opened for business, investing in large-cap U.S. stocks. The fund does not invest in any of the more than 40 U.S. companies doing business in any of the blacklisted countries.
Barred from its holdings, Langerman says, are General Motors, which owns a stake in PSA Peugeot Citroen, the largest automaker in Iran; Yum! Brands, Inc., whose KFC restaurants operate in Syria; and banks that conduct financial transactions, soft-drink makers that have agreements, and manufacturers that supply medical devices and cell phones in those countries. Even companies that have received waivers from the State Department allowing them to do business in the blacklisted countries get a thumbs-down from the Patriot Fund. “There are a lot of loopholes in the sanctions legislation,” Langerman says. Terror-free investing, like the anti-apartheid movement in the mid-1980s and the “green” investing trend of the past 20 years, falls under the umbrella of what is often called socially responsible investing. Such investing allows people to put their money where it can “do good,” but investors often ask whether their portfolios also will “do well.” Social action has long been part of Langerman’s life. Formerly a member of Temple Solel and Temple Chai, Langerman is currently a member of Chabad of Fountain Hills.
Morningstar mutual fund analyst David Kathman looked at the issue of social responsibility and fund performance in a 2012 article. In theory, he noted, screening out companies should hurt performance, because it makes the investment universe less diversified. In practice, he said, academic studies over the past 20 years have failed to find a significant long-term difference in
returns.
As a young fund, the Patriot Fund has just a one-year track record. In the year ending June 30, 2013, the fund’s total return was 16.71 percent, while its benchmark, the S&P 500 Index, was up 20.61 percent. Langerman notes that terror-free investing has the added advantage of reducing global security risk, or the risk that comes with doing business in volatile economies. He maintains that terror-free investing is the right thing to do and earns a good return.
“There’s a big emotional component to it,” Langerman says. “This gives people the opportunity to participate and actually fight in the economic war on terror and make a difference, and to feel good while they’re doing it.”
“I like knowing that I’m not only earning money from my investments, but my investments reflect my beliefs,” says retired advertising executive Noelle Baker of Phoenix. “As soon as I learned about the fund and why it was created, I did my research and knew it’s where I should put my money.”
Terror-free investing isn’t the only focus for Empowerment Financial Group. The independent, fee-only financial consulting firm also helps people plan retirement, business owners plan exit strategies and divorcing people handle the financial aspects of the process. “We’re in this business to help people achieve their financial goals,” says Paul Seidman, president of Empowerment Financial Group and a chartered retirement planning counselor.
Langerman, who is an accredited investment fiduciary, has been a financial adviser for nearly 30 years. He managed offices for Paine Webber and Wells Fargo Investments before starting Empowerment Financial Group with Seidman in 2009. Seidman spent a career with food companies such as Mars, Inc., and as the owner of small businesses providing garage cabinets and direct marketing. “I was the guy, when I worked in the Fortune 100 companies, that if somebody needed help with their 401(k), they would come ask me because I always had an interest in it,” he says. So when he was looking to change careers in 2003, after having been a client of Langerman’s for almost 15 years, joining Mark in financial services was a natural move. When not helping their clients sleep well at night, Langerman serves on the board of directors of America’s Mighty Warriors, a nonprofit dedicated to honoring U.S. troops, and Seidman coaches football at Pinnacle Peak High School in Phoenix.
If the countries now deemed state sponsors of terrorism manage to someday come into compliance and fall off the State Department’s list, the Patriot Fund would be a regular stock
fund, Langerman says. But there is no talk of them complying any time soon, he notes. “This is one arrow in the quiver in the fight in the war on terror,” he says. “We want to fight terrorism one informed investor at a time.”
