How do SRI Funds Measure Against Traditional Funds?

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Socially Responsible Investment Funds Perform Strongly

One of the continuing perceptions held by many advisors is that socially responsible investment funds underperform the market.

These advisors believe that, by screening out certain companies or industries, investment opportunities are reduced and therefore risk is increased. The result – lower returns than funds invested in a conventional way.

Is this a fair representation of the industry? The Social Investment Organization recently did an in-depth analysis of returns for socially responsible investment (SRI) funds in Canada across major asset classes. Using the most recent performance numbers provided by Fundata (to March 31, 2012) a portrait is emerging of a strongly performing industry with outperforming funds in every major fund category.

For example, in the Canadian Equity fund class, the average of SRI funds outperformed the average of all Canadian Equity funds on a one, three, five and ten-year basis. Eleven of the fifteen funds in this category outperformed the industry average on a one-year basis, six of nine outperformed on a three-year basis, five of eight outperformed on a five-year basis and four out of four outperformed on a ten-year basis.

In Canadian Fixed Income the SRI funds average outperformed the industry average on a one, three and five-year basis and was almost identical on a ten-year basis. Half or more of the SRI funds in this class outperformed the industry average on a one, three, five and ten-year basis.

The results for Canadian Equity Balanced and Global Equity are mixed but still positive. In both of these cases, SRI funds, on average outperformed the industry average on a one and ten-year basis, though there is underperformance on a three and five-year basis. The longer term performance of SRI funds in these categories must be cautiously interpreted because the majority of these funds have not been running long enough for five and ten year results. In fact, only two funds in each category yield ten year results. On a ten-year basis, in both categories, one of the two funds outperformed.

In the Canadian Money Market class, there are only two SRI funds and their average shows outperformance on a one, three, five and ten-year basis. Both these funds outperform on a ten-year basis.

Another small asset class for SRI funds is Canadian Small or Mid-Cap Equity. Here there is only one fund and it outperformed the industry average on a one, five, and ten year basis, but not a three-year basis.

There are only two funds in the U.S. Equity and International Equity fund classes. SRI funds, on average, outperformed the industry average on a one, three and five year basis, but not on a ten-year basis.

It will take some time for the long-term performance of the SRI industry to reveal itself because of the relatively short term track record of most funds, but early results are encouraging.
Like with any broad approach to investment, some funds perform better than others, and it’s up to investors and investment professionals to find these. However, our study shows that there are more than enough leading SRI funds to choose from with strongly performing funds in every major fund category.

There are several reasons investors choose to invest their money in socially responsible mutual funds.

Certainly, most socially responsible investors want to ensure that their investments are in line with their values. Mutual fund companies accomplish this through a variety of means, including: screening out companies that fail to meet certain environmental, social and governance (ESG) standards; selecting top performing companies or companies with a strong social or environmental purpose; and also by directly engaging with companies to encourage improved ESG performance. Socially responsible investors and fund managers are also aware that companies that effectively manage ESG issues are, overall, better placed to manage longterm risk to shareholder value. As this study shows, another compelling reason to consider SRI funds is the delivery of strong and competitive returns.

Research Brief by Ian Bragg of the Social Investment Organization

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The information in this website was obtained from sources believed to be reliable, however, we cannot guarantee that the information is accurate or complete. The information provided is a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities.

Leede Jones Gable Inc. is a
Member of IIROC and the Canadian Investor Protection Fund
Stephen Whipp is a member of the Responsible Investment Association