Socially Responsible Investing: An Overcrowded Trade [Part Two]

This is part II of the series on socially responsible investing.

See Part I here.

Socially responsible investing: Underperforming

Other studies have shown that socially responsible investments consistently underperform local benchmarks. A study entitled The Price of Ethics: Evidence from Socially Responsible Mutual Funds, by Renneboog, Luc and ter Horst, Jenke and Zhang, Chendi, published May 2007 showed that socially responsible investment funds in many European and Asia-Pacific countries strongly underperform domestic benchmark portfolios by about 5% per annum.

Before the deduction of fees, the results were as follows:

“Consistent with investors paying a price for ethics, SRI funds in many European and Asia-Pacific countries strongly underperform domestic benchmark portfolios. In particular, the average risk-adjusted returns of the SRI funds in Belgium,...

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