SRI fund returns lag wider market
Investors in socially responsible investments (SRI) will lose about 0.7 per cent per year on their investments compared to mainstream investments according to a report released today.
The report, authored by Paul Ali and Martin Gold from Stellar Capital and published in conjunction with the Centre for Corporate Law and Securities Regulation at the University of Melbourne, was designed to see if it is possible to “invest for good” without any financial sacrifice.
The lower return figure was based on analysis of seven years worth of returns and tested the effects of omitting shares that operate in industries that are normally deemed to fall outside SRI funds. These industries include alcohol, armaments, gaming, pornography or tobacco.
In compiling the report, which is the first analysis of the growing SRI market, the authors state that the size of the market is more than $1.9 billion and with the uptake of SRI strategies by fund managers, the forecast for growth is strong.
However this growth has not been matched by a system to measure either SRI returns or their investment strategies which has led to significant differences between the approaches to construct SRI portfolios.
To highlight this lack of uniformity the report says that some funds do not actually exclude companies that are undesirable but rather use a lower weighting in those share relative to capitalisation in the market.
The report also outlined the level of screening funds used to define their investment portfolios with 56 per cent using only a negative screen to reject investments according to certain criteria.
A third of the market used a mix of positive and negative screens with the former designed to identify investments that have addresses the issues of the environment or work place conditions. However only 9 per cent of funds solely used a positive screen.
AUTHOR
Jason Spits
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