Article Preview
TopIntroduction
Socially Responsible Investing (SRI), frequently called Ethical Investing, is broadly defined as an investment process that integrates not only financial but also social, environmental, and ethical (SEE) considerations into investment decision making. SRI has grown rapidly around the world in the last decades. As informed by the Social Investment Forum in its last bi-annual report (SIF, 2007): “Near eleven percent of assets under professional management in the U.S. are now involved in SRI. SRI assets rose more than 324 percent from $639 billion in 1995 to $2.71 trillion in 2007. During the same period, the broader universe of assets under professional management increased less than 260 percent from $7 trillion to $25.1 trillion. From 2005-2007 alone, SRI assets increased more than 18 percent while the broader universe of professionally managed assets increased less than 3 percent.”
Social Responsible mutual funds, also known as invested funds, are one of the main instruments of SRI. The term “fund”, a kind of collective investment, is used to refer to a ready-made financial product where investor’s money is pooled into a portfolio and a fund/investment manager decides which shares to buy. As reported by the Social Investment Forum (SIF, 2010), during 2009 funds topped their benchmarks across nearly all asset classes, including balanced, large cap, small cap and global funds, as well as bonds1 (Table 1).
Table 1. SIF member mutual fund performance by benchmark
| Average Annual Returns |
| 1-year | 3-year | 5-year | 10-year |
| U.S. Large Cap |
| Benchmark: S&P 500 | 26.46% | -5.63% | 0.41% | -0.95% |
| # SRI funds analyzed | 73 | 56 | 41 | 32 |
| SRI fund performance | 32.67% | -4.92% | -0.24% | 0.03% |
| % SRI funds beating benchmark average | 72.6% | 50.0% | 36.6% | 62.5% |
| U.S. Mid Cap |
| Benchmark: S&P 400 Mid Cap | 37.38% | -1.83% | 3.27% | 6.36% |
| # SRI funds analyzed | 9 | 9 | 6 | 4 |
| SRI fund performance | 36.24% | -4.00% | -0.15% | 0.77% |
| % SRI funds beating benchmark average | 33.3% | 33.3% | 0.0% | 25.0% |
| U.S. Small Cap |
| Benchmark: Russell 2000 | 27.17% | -6.07% | 0.51% | 3.51% |
| # SRI funds analyzed | 16 | 10 | 6 | 5 |
| SRI fund performance | 32.37% | -7.65% | -4.70% | 1.46% |
| % SRI funds beating benchmark average | 62.5% | 20.0% | 0.0% | 20.0% |
| U.S. Balanced |
| Benchmark: Blend 60% S&P 500, 40% Barclays Capital U.S. Aggregate | 18.40% | -0.67% | 2.52% | 2.25% |
| # SRI funds analyzed | 9 | 7 | 7 | 7 |
| SRI fund performance | 20.54% | -2.70% | 0.78% | 1.12% |
| % SRI funds beating benchmark average | 77.8% | 14.3% | 0.0% | 28.6% |
| U.S. Fixed Income Bond |
| Benchmark: Barclays Capital U.S. Aggregate | 5.93% | 6.04% | 4.97% | 6.33% |
| # SRI funds analyzed | 15 | 14 | 13 | 10 |
| SRI fund performance | 8.04% | 4.86% | 4.13% | 5.40% |
| % SRI funds beating benchmark average | 66.7% | 14.3% | 7.7% | 0.0% |
| International Equity- EAFE |
| Benchmark: MSCI-EAFE | 32.46% | -5.57% | 4.02% | 1.58% |
| # SRI funds analyzed | 16 | 12 | 5 | 5 |
| SRI fund performance | 28.11% | -10.45% | -1.16% | -2.94% |
| % SRI funds beating benchmark average | 31.3% | 0.0% | 0.0% | 0.0% |
| Percent of SRI funds (all asset classes) beating benchmark | 65.0% | 32.7% | 21.5% | 37.5% |
Source: Benchmarks selected by and data from Thomson Reteurs; Analysis by Social Investment Forum, 2010, Washington, DC.
Note: data within parenthesis are negative numbers.