The Social Investment Forum has released a report showing that 65% of socially responsible mutual funds it analyzed outperformed their benchmarks last year.
SIF considered 160 funds from fund families that are members of the nonprofit organization, but only 143 were included in the results. "The reason is we had about 17 funds that were pretty much in a category by themselves or they were in a specialized category without an obvious benchmark," says Meg Voorhes, SIF's deputy director and research director.
The 143 funds were in seven asset classes, but U.S. large-cap funds particularly stood out by their number and performance. Socially responsible large-cap funds in the study numbered 73 in 2009, and 72.6% of them outperformed the S&P 500 by more than six percentage points. The S&P 500 returned 26.46% last year, compared with 32.67% for SRI U.S. large-cap funds. Socially responsible large-cap funds also outperformed based on three-year and ten-year average annual returns, but slightly underperformed on five-year returns.
"More and more, we're seeing socially responsible and sustainable funds that can provide performance," says Michael Lent, chief investment officer for Veris Wealth Partners, an independent registered investment advisory firm with offices in New York, San Francisco and Portsmouth, N.H.
In addition to U.S. large-cap funds, SIF's 2009 SRI comparison also included nine U.S. mid-cap, 16 U.S. small-cap, nine U.S. balanced, 15 U.S. fixed-income, 16 international equity-EAFE and five international equity-global funds.
The majority of SRI funds in each class outperformed their respective benchmarks in 2009, except for those in U.S. mid cap and international equity-EAFE. In U.S. mid cap, only three of nine funds beat the S&P 400 Mid Cap, which returned 37.38% for the year. In international equity EAFE, five of 16 funds outperformed the MSCI-EAFE index, which returned 32.46%.
Voorhes noted that only a handful of SRI funds were in those asset classes ten years ago. "I'd say that those are areas where SRI investors haven't had as much experience, and the other thing to point out is that it's been harder to get reliable, consistent data on environmental, social and governance factors from smaller companies," Voorhes says.
But more smaller companies are beginning to track ESG factors and SRI investors have been looking at emerging markets and mobilizing companies to provide more and consistent information, she adds.
The 22 fund families represented in the SIF analysis are: Access Capital Strategies; AHA; Appleseed; Ariel; Azzad; Calvert; Community Capital Management; Domini; Gabelli; Green Century; Integrity; Legg Mason; Meeder Asset Management; MMA Praxis; Neuberger Berman; New Alternatives; Parnassus; Pax World; Portfolio 21; Sentinel; Walden; and Winslow.
Lent, who has been working with clients interested in SRI for 16 years, adds that SIF's performance chart on SRI funds shows a significant increases in choices in different asset classes with a number of competitive options. Information about SIF member mutual funds can be found online on SIF's Mutual Fund Performance Chart.