Publicação
Performance of SRI funds during market crises: evidence of the US market
| Resumo: | In the past years, society has become more aware of social issues, such as the environment, human and civil rights, labour conditions and relations, which led to a growth of Socially responsible investment (SRI) in the last decades. This growth has produced a debate on the performance of this type of investment and especially the comparison with the performance of conventional investments. In the SRI set of investment possibilities, mutual funds are the main instrument subject to this debate. Most empirical studies find that SRI mutual funds do not perform differently from their conventional peers. The purpose of this dissertation is to evaluate the financial performance of US SRI mutual funds and compare them against matched US conventional mutual funds. The other objective of this study is to evaluate the performance of such funds during times of financial distress, in order to test the possibility of SRI mutual funds serving as insurance to investors during recessions, by limiting the downside risk. The dataset consists of 149 US Equity SRI funds and 447 matched US Equity conventional funds over the period between January 2005 to January 2021. The dataset includes both surviving and non-surviving funds and from them, we create two equally weighted portfolios. The portfolio of conventional funds is composed of matched funds by the classification of the fund, age, and Total Net Assets. For each SRI fund three conventional funds were selected. Fund performance is evaluated using unconditional and conditional approaches of the Carhart (1997) four-factor model, the Fama and French (2015) five-factor model and the Fama and French (2018) six-factor model. To analyze the recessions periods, we added dummy variables to the multi-factor models to distinguish the performance of the funds in different market states. These periods were identified following the US Business Cycle expansions and contractions of NBER. Overall, SRI funds present a neutral performance and their conventional peers tend to present either a neutral performance or a slight evidence of underperformance, especially in recessions. In terms of the performance in recessions, SRI funds clearly perform better compared to their conventional peers in the 2020 recession. Both types of funds are more exposed to small-cap stocks and high investment firms. In sum, there is no evidence of SRI funds underperforming their conventional peers, so investors can add SRI funds to their portfolio without a performance cost. Also, it should be noted that these funds can serve as some type of insurance in recessions, and it is obvious that they do not place investors at disadvantage to conventional funds. |
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| Autores principais: | Picado, Miguel Santos Fonseca |
| Assunto: | Socially responsible investing Mutual fund performance SRI funds Conventional funds Financial crisis Investimentos socialmente responsáveis Desempenho de fundos de investimento Fundos de investimento socialmente responsáveis Fundos convencionais Crise financeira |
| Ano: | 2021 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade do Minho |
| Idioma: | inglês |
| Origem: | RepositóriUM - Universidade do Minho |
| Resumo: | In the past years, society has become more aware of social issues, such as the environment, human and civil rights, labour conditions and relations, which led to a growth of Socially responsible investment (SRI) in the last decades. This growth has produced a debate on the performance of this type of investment and especially the comparison with the performance of conventional investments. In the SRI set of investment possibilities, mutual funds are the main instrument subject to this debate. Most empirical studies find that SRI mutual funds do not perform differently from their conventional peers. The purpose of this dissertation is to evaluate the financial performance of US SRI mutual funds and compare them against matched US conventional mutual funds. The other objective of this study is to evaluate the performance of such funds during times of financial distress, in order to test the possibility of SRI mutual funds serving as insurance to investors during recessions, by limiting the downside risk. The dataset consists of 149 US Equity SRI funds and 447 matched US Equity conventional funds over the period between January 2005 to January 2021. The dataset includes both surviving and non-surviving funds and from them, we create two equally weighted portfolios. The portfolio of conventional funds is composed of matched funds by the classification of the fund, age, and Total Net Assets. For each SRI fund three conventional funds were selected. Fund performance is evaluated using unconditional and conditional approaches of the Carhart (1997) four-factor model, the Fama and French (2015) five-factor model and the Fama and French (2018) six-factor model. To analyze the recessions periods, we added dummy variables to the multi-factor models to distinguish the performance of the funds in different market states. These periods were identified following the US Business Cycle expansions and contractions of NBER. Overall, SRI funds present a neutral performance and their conventional peers tend to present either a neutral performance or a slight evidence of underperformance, especially in recessions. In terms of the performance in recessions, SRI funds clearly perform better compared to their conventional peers in the 2020 recession. Both types of funds are more exposed to small-cap stocks and high investment firms. In sum, there is no evidence of SRI funds underperforming their conventional peers, so investors can add SRI funds to their portfolio without a performance cost. Also, it should be noted that these funds can serve as some type of insurance in recessions, and it is obvious that they do not place investors at disadvantage to conventional funds. |
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