Welcome to MutualFunds.com
Please help us personalize your experience and select the one that best describes you.
Your personalized experience is almost ready.
Check your email and confirm your subscription to complete your personalized experience.
Thank you for your submission
We hope you enjoy your experience
The authors applied value-weighted scores using firm-level holdings to assess the level of corporate social responsibility (CSR) of a fund. This allowed them to compare fund performance based on the CSR criterion. To rate individual companies, they employed a KLD database. KLD Research & Analytics is a leading authority on social research for institutional investors, offering research, benchmarks, compliance and consulting services analogous to those provided by financial research service firms.
Their study covered the period from 2003 through 2011 and 2,168 U.S. equity mutual funds. To measure risk-adjusted returns, the authors used the four factors of market beta, size, value and momentum. The following is a summary of their findings:
The findings mentioned above are also consistent with those from Harrison Hong and Marcin Kacperczyk, authors of the study, The Price of Sin: The Effects of Social Norms on Markets, which appeared in the July 2009 issue of the Journal of Financial Economics.
They found that for the period from 1965 through 2006, a portfolio long sin stocks and short their comparables had a return of 0.29% per month after adjusting for a four-factor model comprised of the three Fama-French factors (beta, size and value) and the momentum factor. The statistics were economically significant. In addition, as out-of-sample support, they found that sin stocks in seven large European markets and Canada outperformed similar stocks by about 2.5% a year.
While many investors will vote “conscience” over “pocketbook,” there is an alternative to socially responsible investing at least worth considering: avoid socially responsible funds and donate the higher expected returns to the charities that you are most passionate about. In that way you can directly impact the causes you care deeply about and get a tax deduction at the same time.