the hip investor: making a better profit by building a better world

March 18, 2010

CONFIDENTIAL © 2006-2010 HIP Investor Inc. 1

Special Sneak

Preview:

Coming

April 2010 (John Wiley & Sons)

HIP = Human Impact + Profit

HIP

Investing

Solve Human Needs (Do Good)

Maximize Profits (Make Money)


3

3 in 4 Employees Want to “Do Good” and Looking to Employers for Purpose

“Commitment to social issues” is a major factor for Americans deciding…

52%

40%

48%

+20%

+26%

+29%

0% 25% 50% 75% 100%

Wish myemployer would

do more forsocial causes

How I invest

Where I work

2001/04 survey 2007 survey

77%

66%

72%

Source: ConeCause survey of 1096 consumers in 2001, 2004 and 2007

4

Customers and Investors Want to Buy and Invest HIP

INVESTORS

66% see “doing good” as positive indicator

19% REFUSE to invest if firms not “doing good”

CUSTOMERS

65% want to “do good” by BUYING

49% DON’T buy if

not good

38% tell a friend

Source: Cone survey of 4000+ consumers, 2007-2008

5

But CFOs, Investors & Corporate Managers Unclear on $ Value

McKinsey surveyed 238 CFOs+investors & 127 CSR leaders:

• 85% see long-term financial value from eco-initiatives…

• BUT, 45% of CFOs and 51% of investors see them as less important to financial value during this crisis!

6

But CFOs, Investors & Corporate Managers Unclear on $ Value

McKinsey surveyed 238 CFOs+investors & 127 CSR leaders:

• And, 53% of CSR professionals “don’t know” the shareholder value of eco-initiatives.

• Finally, 14% of CSR managers prioritize charitable giving as more important than revenue growth, at

12% (!!) Brand enhancement, talent management and society’s expectations

are quoted as the top 3 ways that ESG programs deliver value

HIP’s 5 Dimensions of Measurable Impact Lead to Sustainable, Profitable Growth

• Physical Health

• Mental Agility Health

• Income Growth

• Asset Accumulation Wealth

• Carbon Neutrality

• Reusable Products Earth

• Gender Balance

• Ethnic Diversity Equality

• Transparent & Open

• Credible & Ethical Trust

HIP companies innovate to answer five human needs:

Innovative Products + Services

Inspired People + Teamwork

Increased Profits + Returns

Improved Planet + Society

Resulting in sustainable, profitable growth for all stakeholders:


Human Impact + Profit (HIP): The New Fundamentals of Investing

• Profiteer: The Traditional Way – Solely focuses on the capitalist approach – chasing short-term financial gains risking environmental and economic stability

• Do Gooder: The Exclusionary Way – Follows a socially responsible philosophy – excluding “bad” companies from portfolio – leading to lower long-term returns

• HIP Investor: The Breakthrough Way –Integrates “sustainability” into the fundamentals, transforming a portfolio; demonstrates that leading companies that integrate sustainability produce higher profits and greater appreciation

• This HIP approach seeks two goals for your portfolio

• Higher financial returns on a risk adjusted basis

• Increased positive human, social and environmental impact


The HIP Approach Outperforms Both the Profiteers and Socially Responsible Investors

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

$130,000

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5 Year Net of HIP Fee Returns

Net of Fees HIP 100

Net of Fees S&P 100

Net of Fees 3 Month

Net of Fees DOMINI 400


10

Always Ask: “HOW HIP IS IT?”

• What human problem does this solve?

• How do you design for both

Human Impact + Profit?

• What management practices are in place to be HIP?

The HIP Methodology Process

Quant.

Impact HIP

Dimensions

1

Research

2

Quanti-fication

3

Inter-view

4

Scor-ing

5

Weighting

• Analytics based on 30 quantifiable metrics

• New fundamentals drive weighting of portfolio

• Same universe as S&P benchmarks


First, We Evaluate How Value is Created

Company Categories HIP Revenue share

GE EcoMagination 80 products, $17 Billion Equals about 10% global revenue in 2008

Pepsi Co Good for You Better for You Fun for You

30% Good and Better for You e.g. Tropicana Orange Juice, Quaker Oats

Campbell’s Soup

Lower sodium (less than 460mg) Lessened sodium High sodium per serving (780mg)

Goal for FY 2010 is: 20% …30% …50%


13

1) Health: Clean Doesn’t Smell Clorox GreenWorks + Sierra Club

Solves Human Problem: * Non-allergenic (health) * Affordable, small premium (wealth) * Eco-stable cleaner (earth) Delivers Environmental Benefit: * Meets EPA “design for environment” (DfE) standards * Biodegradable = 100% renewable Profitable for Investors: + 42% category market share + $200 million annual sales + Doubled the category size since Dec. 2007 launch

14

1) Health: Maximizing Life GE’s Logiqbook XP Ultrasound

Customer Affordability $16,000 retail price Lease for $339 per month Employee Satisfaction Solving a Human Problem… Investor Delight …for Profit + New market, high-growth, + lower manufacturing cost, + increased margins

15

2) Wealth: Increasing access to capital Wal-Mart Debit Card

• Unbanked = 10% of US families; 10 MM households – Frequently pay high fees relative

to frequent transactions

• New services increase wealth for

customers: – Lower check cashing

fees – Easier shopping at WMT,

car rentals, hotels – Trusted remittances to

family abroad – Access to ShareBuilder

investments

Next, We Run the Numbers on Human Impact

HIP Dimension

Sample HIP metrics How It Drives Profit

Health Customer and Employee Satisfaction Access to health care and wellness

Higher revenue, more referrals Increased retention, and focus

Wealth Total compensation matching CEO pay to worker pay

Boosted loyalty, longer-term staff More to invest in the business

Earth Greenhouse Gas Emissions (GHG) Waste reduction and re-use

Reduced fuel intensity, value of credits Lower costs, lessened risk

Equality Board diversity Supplier diversity

More risk-conscious decisions Stable supply base ensures deliveries

Trust Legal exposure Certifications

Reduced liabilities today & future Systematic process keeps costs lower


17

3) Earth: Saving Money + Carbon in Green Data Centers (SUN)

• Sun optimized its data centers in Silicon Valley – Enabled “virtualization” – Arranged for energy efficiency – Implemented energy sensors – Reduced 2,177 servers to 1,240

• Saving both operating + capital $$$ – Avoided $9.3MM in new construction – Retrofit payback in 3 years or less – $1mm utility incentive payment

• Positive impact on environment satisfying growing customer need – Eliminate 4100 carbon tons yearly

http://blogs.business2.com/greenwombat/2007/08/sun-greens-the-.html

18

1&3) Human Impact Profit

Lower Carbon = $$$

Human Impact = $$$

19

4) Equality: More Women on Board = Outperformance (ROE, ROS, ROIC)

20

5) Trust: Transparency of Supplier Sourcing and the Entire Carbon Chain

Solves Human Problem: • 100% traceable gold and silver • Personalized map of your purchase

at: www.LoveEarthInfo.com

Delivers Environmental Benefit: • Supplier scorecard also tracks CO2e

(carbon) associated with mining, refining, transport, crafting, delivery

• Target: Zero waste; minimize water Profitable for Investors: + Positive growth of product line in

declining category + Targets 10% of jewelry line by 2010

Strong Decision Systems Embed Sustainability

Mgmt Systems Leading HIP examples Leading Firms

Vision 50% by 2015 Zero by 2020

AMD Interface

Measures 10-point balanced scorecard PG&E, H-P, McDonald’s

Financials 10% or more of revenue $400mm cost savings +2% more; 40% less energy Solar tax credits

GE, Pepsi, Campbell’s Interface Liberty Property Trust Walgreens

Accountability Board committees; Performance targets for VPs, managers, staff

GE, Chevron, Intel Corp., Herman Miller

Decision Making

Approval / integration of new product design

United Technologies Sun Microsystems


All Three Categories Are Integrated Together

HIP Category Portfolio Weights (total 100%)

Hypothetical HIP Results

Overall HIP Score

Product 15% x (multiplied by) 10% = 1.5%

Human Impact 60% x 50% = 30%

Management Practices

25% x (20 of 25, or) 80% = 20%

Overall HIP score = 51.5%


HIP Weights Are Based on Impact, Not Just Market Value

S&P Rank

S&P 100 Market Value

S&P Weight

1 Exxon Mobil $323B 5.14%

2 Microsoft $235B 3.74%

3 Apple $189B 3.01%

5 Procter & Gamble $177B 2.81%

9 GE $161B 2.56%

19 Intel $116B 1.80%

23 Philip Morris $95B 1.40%

100 Lockheed Martin $24B 0.38%

HIP Rank

S&P 100 HIP Score HIP Weight

1 Procter & Gamble 71.0 1.47%

2 GE 70.8 1.46%

3 Intel 70.0 1.45%

24 Microsoft 57.2 1.18%

41 Lockheed Martin 53.2 1.10%

56 Exxon Mobil 48.4 1.00%

68 Apple 42.8 0.88%

100 Philip Morris 15.0 0.31%


HIP 100

Performance: A HIP100 Approach Exceeds the S&P 100 by 4% (400bps) Annually


Performance: A HIP100 Approach Exceeds the S&P 100 in Multiple Periods


In the Last Half of 2009, HIP 100 Outperformed

Since HIP 100’s “live” inception date of 7/30/09

*Actual net-of-fees results of the HIP 100 Portfolio and the S&P 100 index. Percentages include

reinvested dividends and stock splits, and deduct fees and trading costs based on a $100,000 beginning balance. Past results are not indicative of future performance.

Index Net Results As Of

HIP 100 +14.23% 12/31/09

S&P 100 +12.23% 12/31/09


HIP’s “Bottom Up” Sector Weights Differ From S&P’s Market Weights

16.1% 22.4%

15.0%

14.3%

14.2% 8.8%

12.6% 12.2%

12.4% 13.7%

9.3% 6.7%

8.9% 13.8%

4.8% 1.8%

3.6% 1.6% 3.1% 4.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

HIP100 S&P100

Telecom Utilities

Materials

Energy

Consumer Discr'y

Health Care

Financials

Industrials

Consumer Staples

Info Tech

HIP100 v S&P100 Sector Weights


HIP 100 Explained: The Top 10 of the 100


HIP’s Indexes Seek Diversification, Alpha and Positive Risk-Adjusted Returns


All Types of Investors Can Benefit from a HIP Portfolio

HIP Portfolio

Individual Investors

Family Offices

Endowments

Retirement Plans

Pensions

Corporate Treasuries

Foundations


New Investments Across Asset Classes

MFE’s More HIP Portfolio

Cash

All Cash is Invested for

Human Impact +

Profit

Fixed income

Corporate bond index

(become the new JENI)

Income Generating

Appreciation

Real Estate Investment Trust (a HIP

REIT)

Equities

HIP Indexes that cover all sectors and

sizes

International and

Emerging

Emerging markets

index (the new BRIC)

Venture Capital and

Private Equity

VC and PE funds that

deliver impact

Alternatives

Commodity contracts

that are fair trade,

organic, and sustainable


A

HIP Can Apply Across Asset Classes

HIP Portfolio

Cash

Community Bank of Bay

Wainwright

New Resources

Bank

Fixed income

Muni Bonds

Domini Corp. Bond

Index

Microfinance

RSF Mezz.

Income Generating

Appreciation

Preferred equities

(dividends)

REITs

Equities

HIP in US

HIP in EUR

Impact strategies (Earth 2x)

International and

Emerging

Portfolio 21

Cleantech indexes

(e.g. PZD)

Venture Capital and

Private Equity

Renewal2

Sartori

Patient Capital

Alternatives

Fair Trade Coffee

Organic orange juice


A More HIP Portfolio to Yields More Human Impact + Profit

• The new fundamentals of investing shift how businesses create value – by solving human needs for profit

• A HIP Portfolio can generate higher risk-adjusted returns, generating positive alpha – and impact

• Positive financial risk-adjusted returns attracts more traditional and SRI investors to this path

• Consequently, a HIP Portfolio builds a better world for investors, entrepreneurs and citizens


A Fundamentally New World for Investors, Business and Citizens

• Investing: Transform how capital markets –

from mutual funds and ETFs to venture

capital – serve society

• Business: Solving human needs for profit is

the path to industry leadership

• Citizens: Open sourcing of investing

enables “wisdom of the crowd”

and global impact


About HIP Investor

• HIP is a registered investment advisor, based in California

• Our multi-disciplinary team combines expertise in finance and sustainability, including microfinance and impact investing

• The HIP 100 Index has outperformed the S&P 100 by 4% on average annually over the past 5 years*

• Author of new investment primer, “THE HIP INVESTOR: Make Bigger Profits by Building a Better World” to be published by John Wiley and Sons, April 2010

* Since July 30th, 2009, the HIP 100 Portfolio has outperformed the standard S&P benchmark by 2% for less than a half-year . The HIP 100 has also outperformed the S&P benchmark in a five-year backtested model (please see Disclosure and Assumptions at the back of the document).


Disclosure and Assumptions



Special Sneak

Preview:

Coming

April 2010 (John Wiley & Sons)

Contact Us to Become More HIP

R. Paul Herman CEO + Founder +1 415 902 7741 [email protected]

Joan Varrone COO + Exec Vice President +1 415 305 6329 [email protected]

Eric Steinhofer Senior Vice President +1 415 518 2746 [email protected]

www.HIPinvestor.com


mailto:[email protected]



http://www.hipinvestor.com/