The performance of socially responsible equity mutual funds: Evidence from Sweden

Abstract

This paper presents a comprehensive analysis of socially responsible (SR) funds in Sweden by assessing fund managers' abilities and performances across different market states. These issues are analyzed at the aggregate and individual fund levels. The paper also presents several new statistical tests that allow more precise inferences about differences in performance and the variability in fund returns arising from different benchmarks. In general, SR and conventional funds perform similarly to the market. At the aggregate level, SR funds investing in Sweden and Europe perform similarly to conventional funds, while those investing globally tend to underperform. This underperformance seems to be linked with poor selectivity abilities of global SR fund managers. For individual funds, the performance of both types of funds is more similar. Most funds perform similarly in crisis periods compared to non‐crisis periods. Overall, our results are consistent with a mature market for SR investing and support the view that the similar performance of SR and conventional funds is associated with the mainstreaming of SR investment in Sweden. These findings encourage SR investing both by socially conscious investors, who wish to align their social values with their investment decisions, as well as by conventional investors, who will not be penalized by investing in these funds. We also call attention to the difficulties investors face when trying to identify funds with high social standards, considering that there is scarce information on the extent to which each fund (SR or conventional) holds stocks that comply with ethical and social criteria.

Does the Asset Allocation Policy Affect the Performance of Climate-Themed Funds? Empirical Evidence from the Scandinavian Mutual Funds Market

“…For the other analyzed countries, no significant relationship is noted between screening and fund performance. The same results are obtained by Leite et al [44] for 33 Swedish SRI funds from November 2002 to October 2012. Moreover, authors classify analyzed funds into three groups according to their geographic focus of investment: funds investing in Sweden, in Europe, and globally.…”

“…The above assumption leads to the conclusion that it is appropriate to use an equal-weighted portfolio return when assessing a fund's performance. In addition, it should be noted that a similar approach was presented both in earlier groundbreaking papers connected with socially responsible investment [52] and in the latest empirical research [30,44,53,54]. However, it is more practical to use a value-weighted portfolio return to examine the fund portfolio structure and its impact on investment results [51,[55][56][57].…”

“…It should be noted that our research was partly consistent with the current results in this area. Leite et al [44] mentioned that SRI funds operating in Sweden generally perform similarly to the market. In addition, the authors claimed that discrepancies were seen between the efficiency of the investment funds in different markets.…”

Financial Performance of Government Bond Portfolios Based on Environmental, Social and Governance Criteria

“…These findings are in line with most previous studies that reported that SRI performs similarly to conventional investments. Most empirical studies on the performance of SRI mutual funds across different geographical areas found no significant differences between their performance and that of conventional funds [5,50]. Likewise, many empirical studies evaluating differences between high and low-ranked firms, according to their CSR scores, also found that the differences are not significant [2,28].…”

“…The resulting alpha was the estimated financial portfolio performance. This approach was commonly used in previous related studies [49,50]. A challenge in the evaluation of financial performance is the need for controlling alternative explanations.…”