SRI funds returns lag wider market
By Jason Spits
Investorsin socially responsible investments (SRI) will lose 0.7 per cent per year on their investments compared to mainstream investors, according to a report released last week.
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, which are normally deemed to fall outside SRI funds. These industries include alcohol, armaments, gaming, pornography and tobacco.
In compiling the report, which is the first such 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 of those shares relative to capitalisation in the market.
The report also outlined the level of screening funds use to define their investment portfolios, with 56 per cent using only a negative screen, which simply rejects investments which do not fall into an SRI category.
A third of the market used a mix of positive and negative screens, with the former designed to identify investments that have addressed the issues of the environment or workplace conditions. Only nine per cent of funds used a positive screen solely.
AUTHOR
Jason Spits
Recommended for you
Private wealth manager Escala Partners has increased its alternatives allocations to more than a third in the past three years, describing the asset class as offering “fertile ground” for diversification.
The Financial Services Council has recommended implementing a per capita limit per annum for financial advisers when it comes to the CSLR levy to allow them to expand their business without levy uncertainty.
DASH Technology Group has seen a 49 per cent uplift in its carrying value and is completing a new capital raising, having already received $30 million from growth investor Bailador.
At the halfway point of the year, consolidation pressures continue to drive financial services M&A with three areas identified as targets for asset and wealth managers, according to PwC’s mid-year outlook.
