A Re-examination of the Performance ofSocially Responsible Funds

Abstract

Socially responsible funds recognize that corporate responsibility and societal concerns are valid parts of investment decisions. The objective of this study is to investigate whether socially responsible funds deliver lower expected returns compared to conventional unrestricted portfolios. We analyze the performance of 427 socially responsible mutual funds covered in Morningstar database over the period 1991–2011. Using a multi-factor Fama-French model (Fama and French 1996), which controls for factors such as size, book-to-market value and market, we find that socially responsible funds significantly under-perform the market, during our sample period (September, 1991 – July, 2011). Our study indicates that risk-adjusted returns (using three factor alpha) of socially responsible funds are 0.55% per year lower than those of benchmark indexes. This finding contrasts with many previous studies (both domestic and international),
which have not found statistically significant differences in the performance of socially responsible funds relative to market benchmarks and/or a matched sample of conventional funds.