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January 25, 2010
Most Socially Responsible Mutual Funds Outperformed Benchmarks in 2009
    by Robert Kropp

A study of mutual funds managed by members of the Social Investment Forum finds that two-thirds outperformed their benchmarks across nearly all asset classes in 2009, and most large cap funds outperformed the S&P 500 over three and 10 years.

If there was any air left in the old arguments against socially responsible investing (SRI)—primarily, that a restricted investment universe inevitably leads to lower return on investments—those arguments should be fully deflated by now, as the results of mutual funds performance in 2009 demonstrate.

The Social Investment Forum (SIF) reviewed the performance of 160 socially responsible mutual funds from 22 of its members, and found that 65% outperformed their benchmarks in 2009. The SRI funds reviewed by SIF outperformed their benchmarks across nearly all asset classes.

The performance data was provided by Thomson Reuters, an independent third party.

Almost three-quarters of the 73 large-cap SRI funds reviewed by SIF outperformed the benchmark employed by the study, the S&P 500, in 2009, and on average the large-cap SRI funds outperformed the benchmark by 6%. “A majority of the large cap funds offered by SIF members also outperformed the S&P 500 over three years and over 10 years,” according to the SIF study, by about one percent in both cases.

Other funds outperforming their benchmarks were the 16 small-cap funds (by an average of 5% over the Russell 2000), the nine balanced funds (by an average of 2% over a blended benchmark of the S&P 500 and Barclays Capital US Aggregate), the 15 fixed income bonds (by an average of 2% over Barclays Capital US Aggregate), and the five international global funds, which outperformed the MSCI – World benchmark by an average of 4%.

Only the nine mid cap and the 16 international Europe, Australasia, Far East (EAFE) funds underperformed against their benchmarks, the mid cap by an average of only 1% against the S&P 400 Mid Cap, and the international EAFE by an average of 4% against the MSCI – EAFE.

At a news conference held to unveil the details of the SIF analysis, Cheryl Smith, chair of the SIF board of directors and president of Trillium Asset Management, said, “This analysis underscores the reality that socially responsible investments offer what are genuinely competitive returns. It reaffirms and underscores that SRI investment strategies do not sacrifice returns.”

Over the years, the strategies of SRI funds have evolved, from the negative screening techniques that excluded from their portfolios companies in such industry sectors as tobacco, to a positive screening strategy in which environmental, social, and governance (ESG) factors are considered.

At the news conference, Michael Lent, the chief investment officer of Veris Wealth Partners, said, “Over the past decade, there has been an increased number of socially responsible, sustainable funds that integrate ESG in a positive way.”

“We’ve seen greater interest from investors in these kinds of funds,” Lent continued. “Positive screening for ESG factors has become more important than the negative screens.”

The 22 fund families represented in the SIF analysis are Access Capital Strategies, AHA, Appleseed, Ariel, Azzad, Calvert, Community Capital Management, Domini, Gabelli, Green Century, Integrity, Legg Mason, Meeder Asset Management, MMA Praxis, Neuberger Berman, New Alternatives, Parnassus, Pax World, Portfolio 21, Sentinel, Walden, and Winslow.

Along with its study of the performance of SRI mutual funds in 2009, SIF unveiled a revamped Mutual Fund Performance Chart, which provides investors with information on the financial performance, ESG (positive) and product-based (negative) screening strategies, the online availability of proxy voting records and policies, and the minimum investments required by the mutual funds managed by its members. The chart also includes profiles of each of the funds.

The financial performance data provided by the chart include year-to-date returns, as well as annual average returns over one, three, five, and ten-year periods. The performance of the benchmarks for each of the funds is included as well, as is the size of each fund according to assets under management.

According to SIF, “The Chart shows that more than 50% of SIF member mutual funds consider companies’ executive pay practices when developing their portfolios, and more than two-thirds look for companies with good records on climate change issues and community development. Virtually all exclude tobacco companies altogether from their portfolios or restrict their involvement in such firms.”

Referring to the Mutual Fund Performance Chart, Kathy Leonard, vice president of investments at UBS Financial Services, said, “The chart empowers our clients to really get a sense of what is going on with their portfolios.”

Lent of Veris Wealth Partners said, “Transparency and disclosure by mutual funds are extremely important.”


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