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November 19, 2003
Australian SRI Funds Outperform Their Benchmark Over the Short- and Long-Term
    by William Baue

A new AMP Henderson report finds Australian socially responsible investing outperforms the S&P/ASX 200 over one-, two-, three-, and five-year periods.

The question that keeps coming back to proponents of socially responsible investing (SRI) is: does SRI perform competitively when it comes to financial returns? If the question is posed in Australia, the answer seems to be “yes,” according to AMP Henderson Global Investors.

In a November 2003 report, AMP Henderson surveyed the financial performance of 14 SRI mutual funds in Australia to arrive at the median performance of SRI managers in Australia. The study finds that the median SRI manager outperformed the most relevant benchmark, the S&P/ASX 200, over the one-, two-, three-, and five-year periods, through September 30, 2003. The report acknowledges SRI underperformance in the year 2002.

“After a poorer year in 2002 (when the SRI median underperformed the ASX 200), the SRI median now shows outperformance over all periods analyzed,” state AMP Henderson’s Michael Anderson, director of Australian equities and head of sustainable funds, and Angus Dennis, sustainable funds business manager, the report’s co- authors. “The results point to the continued long-term competitive returns of the SRI sector.”

During the year 2002, the SRI median generated returns of -10.4, while the ASX 200 generated returns of -8.8 percent. Over the one- and two-year periods sandwiched around the 2002 results, however, the SRI median has outperformed the ASX 200. The SRI median, which generated one-year returns of 13.7 percent, outperformed the ASX 200 by 2.3 percent. Two-year outperformance was only slight, as the SRI median generated a return of 6.2 percent while the ASX 200 generated a return of 6.1 percent.

The 14 Australian SRI funds surveyed include the AMP Sustainable Future Australian Share Fund, the BNP Paribas Ethical Fund, the ING Sustainable Investment Trust, SAM Sustainability Leaders Australia, and the Westpac Eco Fund.

The report attributed the strong one- and two-year SRI median performance to Australian SRI’s small cap and growth biases. The ASX Small Ordinaries Index, which tracks the financial performance of small Australian companies, gained 25.6 percent over the past year and 16.1 percent over the past two years, trends that may have benefited SRI funds particularly. The growth bias benefited the funds over the last six months, as the Salomon Smith Barney Growth Index grew by 15.0 percent during that period, compared to 9.6 percent growth for the Salomon Smith Barney Value Index.

“Other contributors in 2003 may have been the fact that some stocks not normally found in SRI portfolios struggled,” the report states. “Gambling companies Aristocrat and wine maker Southcorp respectively fell 70.1 percent and 36.5 percent in the first six months of 2003.”

Australian SRI funds also outperformed the benchmark over the longer term. Over the three-year period, the SRI median outperformed the ASX 200 by 0.7 percent, generating returns of 3.2 percent compared to 2.5 percent returns for the ASX 200. Over the five-year period, the SRI median returned 10.1 percent while the ASX 200 returned 8.0 percent. The report points out the relative dearth of Australian SRI fund managers over the longer term: there were only six SRI fund managers over the three-year period, and only three over the five-year period.

“The results point to the fact that investors do not need to sacrifice returns if they choose to invest with an SRI manager,” said Mr. Dennis.


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