With SRI mutual funds, socially responsible funds, socially responsible investment funds, and green mutual funds celebrating many anniversaries, the SRI investment performance of socially responsible stocks, green investing, sustainable investing, social investing, SRI, and socially responsible investing must be analyzed, showing that SRI investment returns do match market performance – boding well for the socially responsible investor.
Academic research in the field of sustainable and social investing has found that socially responsible investment returns and non-screened social investing portfolios generally share no difference in performance returns, especially after adjusting for the risk factor. According to Hamilton, Hoje, and Statman' article published in Financial Analysts Journal , titled “Doing Well While Doing Good?” there was no statistically significant difference in the performance between socially responsible investment funds and market mutual funds between the years of 1981 to 1990.
Meir Statman, from Santa Clara University , then followed up this study in 2000, comparing 31 socially responsible investment funds against conventional market mutual funds of similar asset size. The socially responsible funds' mean returns did outperform the unscreened mutual funds, although the difference was not statistically significant.
More evidence for socially responsible investment performance
- SRI World performed three-year studies evaluating socially responsible investment funds against its unscreened counterparts, finding that 53% of the SRI mutual funds outperformed 50% of equivalent market mutual funds. 21% of socially responsible funds matched or outperformed the top 25% of market mutual funds. Thus, in this analysis, socially responsible investment performance is very comparable to the broad market mutual funds.
Regardless of the theoretical argument, the only effective way to ascertain socially responsible investment returns in comparison to the market is to allow time to run its course. With that said, as several socially responsible investment funds are hitting their 10 or 15 year anniversaries, the time has come to evaluate how the major SRI mutual funds have performed against the market.
With the bull markets in the late 1990s, fueled by the dot com frenzy, socially responsible mutual funds generally lagged slightly behind market performance. However, when the bear market emerged, it became clear that social investing portfolios held their own ground – and in fact, often outpaced the overall market.
Outperforming the S&P 500 - benchmark for socially responsible mutual funds
The Domini Funds ' trailblazing efforts in socially responsible investing led the way for many socially responsible mutual funds. The Domini 400, considered the benchmark for SRI, has closely matched, if not outperformed the S&P 500 since its inception.
DSEFX Strategies: -Social and Environmental Standards
-Shareholder Activism
-Positive, Negative, Industry Best Screens
The Domini Social Equity Fund (DSEFX) has held its ground as a strong socially responsible investment fund, consistently outperforming the S&P 500 since January 2005. The founder of the Domini Index,
Amy Domini , attributes the performance to a series of social investing research screens. Domini states, “Stakeholder analysis introduces a quantifiable way of assessing things that heretofore have been considered non-quantifiable: the corporate culture and the caliber of top management. We introduce a bias toward high-quality management and strong corporate cultures. We do not make any financial decisions on stocks in the index - we just look for viability.”
Parnassus’ 5 Step Strategy: -Begin with all companies
-Enact social screens
-Economic outlook analysis
-Fundamental investment analysis (fundamentals, financial, management, catalysts, security selection)
Socially responsible stocks – strong in bull and bear markets
Parnassus Equity Income has consistently demonstrated, since its commencement in
1984, that an investor can “do well by doing good.” Whether in bearish or bullish markets, Parnassus has held its ground as a strong socially responsible investments fund. For example, when the S&P fell by 22% in 2002, The Parnassus Equity Income Fund only lost 3.7%.
Within the last year, the socially responsible fund has earned 12.43% in returns, with annualized average returns of 11.42% since its inception. Focusing specifically on mid-cap and large-cap socially responsible stocks, with 80% of its holdings paying dividends, Parnassus Equity Income's portfolio Manager Todd Ahlsten was included in Barron's Top 100 Managers in the years 2003 and 2004.
Socially responsible investments ETFs join the performance game – and plays competitively
The iShares KLD 400 Social Index (DSI) was first offered to the market on November 2006, providing both institutional and retail socially responsible investor an opportunity for sustainable investing - with market exposure. Focused on large-cap, growth socially responsible stocks, this socially responsible investments ETF mimics the Domini 400, its underlying index. The social investing ETF has been able to closely match the performance of the S&P 500 since its inception.
3 Step Selection: -Creates applicable universe of stocks
-Establishes sub-sector allocations
-Derives portfolio after research, including working with energy experts and researchers
Promising start for green mutual funds
The Calvert Global Alternative Energy I (CAEIX) has been a strong contender, with promise of significant socially responsible investment performance. This green mutual fund specifically seeks companies that exhibit promise in the discovery, production, exploration, or distribution of alternative sources of energy – through renewable energy sources, methods that reduce energy use, or technologies that promote alternative energy.
Since its inception in June 2007, the green mutual fund focusing on green investments has grown 24.43% in value in six months.
With green investing, socially responsible investment mutual funds, socially responsible stocks, and even SRI ETFs performing competitively against the unscreened market, socially responsible investors can truly do well for their portfolios – while enacting social good for the world.
