February 8, 2016
by Larry Swedroe
This year has been a record-breaking year for initial public offerings with companies going public via SPAC mergers, direct listings and standard IPOS. At Techlive this week, Jack Cassel of Nasdaq and A.J. Murphy of Standard Industries joined Willem Marx of The Wall Street Journal and Barron's Group to talk about companies and trends in Read More
Consumers can use their market power to demonstrate their aversion to certain business activities by choosing not to purchase goods or use services from companies that, in their minds, are selling immoral products. Similarly, investors can decide not to invest in such companies.
For example, in the 18th century, religious groups in the United States sometimes placed restrictions on their investments, including bans on loans to companies engaged in distilling, tobacco production or the distribution and operation of gambling facilities.
A more recent example is the international outcry raised in the 1970s for South Africa to end apartheid. Many investors, both individual and institutional, divested from multinational companies that did business in South Africa. Although economic sanctions against South Africa ended in 1993, many investors have continued the practice of applying a set of moral standards to every company, wherever they operate.
Today, we call this approach sustainable and responsible investing (SRI). It’s also widely referred to as socially responsible investing. And while SRI is not generally thought of as an alternative investment in the same way hedge funds or commodities are, it represents an alternative for many investors. With this in mind, I’ll do an analysis of SRI funds as part of my continuing series on the performance of actively managed mutual funds.
To create the list of funds to analyze, I began with US SIF. The organization utilizes Bloomberg’s environmental, social and governance (ESG) data service, which provides multi-year, as-reported data on more than 10,500 companies worldwide. I then screened for all equity funds that had at least a 15-year track record, at least $500 million in assets under management and for which there was also a comparable Vanguard index fund (Vanguard being the leading provider of index funds).
The choice of Vanguard benchmark fund is based on the SRI fund’s investment style as assigned by Morningstar. Where multiple share classes were available, I use the lowest-cost fund. These parameters left me with seven funds to evaluate.
The table below shows the assets under management, the expense ratios and the returns data for the seven SRI funds and their comparable Vanguard benchmarks for the 15-year period ending December 1, 2015. Before considering the results, it’s important to note that, by limiting the funds I analyzed to the largest, I am likely injecting survivorship bias into the data. The reason for this is that funds with the most AUM are likely to have been the most successful. Funds with lesser amounts of AUM might not have performed as well, and they may not even have survived the full period.
15-Year Period Ending Dec. 1, 2015
|Fund||Symbol||Assets Under Management (billions)||Expense Ratio (%)||Annualized Return (%)|
|U.S. Large-Cap Blend|
|Domini Social Equity Fund Investor Shares||DSEFX||$1.0||1.16||3.80|
|TIAA-CREF Social Choice Equity Fund||TISCX||$2.7||0.18||5.43|
|Vanguard 500 Index Fund Admiral Shares||VFIAX||$40.0||0.08||5.20|
|U.S. Large-Cap Growth|
|Parnassus Core Equity Fund||PRBLX||$12.1||0.87||9.26|
|Calvert Equity Portfolio||CEYIX||$2.3||0.62||6.87|
|Calvert U.S. Large Core Responsible Index A||CSXAX||$.6||0.75||3.93|
|Neuberger Berman Socially Responsible Fund||NBSRX||$2.3||0.85||7.38|
|Vanguard Large Growth Index Fund Admiral Shares||VIGAX||$21.2||0.09||5.09|
The following is a summary of the results:
- In the large-blend asset class, two of the three SRI funds outperformed the benchmark Vanguard fund. The average outperformance, however, was a modest 0.06%. The SRI funds had to overcome an average expense ratio 0.65 percentage points higher than the benchmark just to match it.
- In the large-growth asset class, three of the four SRI funds outperformed. The average outperformance was 1.77%. The SRI funds had to overcome an average expense ratio 0.68 percentage points higher than the benchmark just to match it.