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Socially Responsible Investment, SRI funds, mutual funds, Australia,

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Perhaps the most common criticism of socially responsible investment funds is that imposing non-financial screens restricts investment opportunities, reduces diversification efficiencies and thereby adversely impacts performance. In this study we investigate this proposition and test whether the "number" of screens employed has a linear or curvilinear relation with return. Moreover, we analyse the link between screening intensity and risk. Screening intensity has no effect on unadjusted (raw) returns or idiosyncratic risk. However, we find a significant reduction in "&agr;" of 70 basis points per screen using the Carhart performance model. Increased screening results in lower systematic risk - in line with managers choosing lower "&bgr;" stocks to minimize overall risk. Copyright (c) The Authors. Journal compilation (c) 2010 AFAANZ.

To date, research into socially responsible investment (SRI), and in particular the socially responsible investment funds industry, has focused on whether investing in SRI assets has any differential impact on investor returns. Prior findings generally suggest that, on a risk-adjusted basis, there is no difference in performance between SRI and conventional funds. This result has led to questions about whether SRI funds are really any different from conventional funds. This paper examines whether the portfolio allocation across industry sectors and the stock-picking ability of SRI managers are different when compared to conventional fund managers. The study finds that SRI funds exhibit different industry betas consistent with different portfolio positions, but that these differences vary from year to year. It is also found that there is little difference in stock-picking ability between the two groups of fund managers. Copyright Springer 2006socially responsible investment, managed funds, portfolio composition, ethical investment,