The performance of socially responsible mutual funds : a review of South African funds

M.Com. (Financial Management)Over the last three decades, socially responsible investing (SRI) has emerged as one of the foremost issues faced by individuals and institutions in their daily activities. While the roots of responsible investing date back to the 18th century, the recent focus on responsible investing has been impactful. There has been growth in understanding the impact of investors’ decisions on long-term sustainability of business and society. In South Africa, the recent amendment of Regulation 28 of Pension Funds Act of 1956 and the introduction of the Code for Responsible Investing in South Africa (CRISA) are some of the latest developments in support of SRI. This minor dissertation evaluates the performance of SRI funds relative to traditional funds from January 2006 to June 2011. Specifically, the focus is on four main measures. Firstly, SRI funds relative to SRI funds’ own mandated benchmark; secondly, SRI funds relative to proxy market benchmark indices; thirdly, SRI funds relative to a matched sample of traditional unit trust funds; and lastly, SRI indices relative to traditional market indices. Twenty-seven funds were analysed in the study. The first finding was that SRI funds outperform their respective benchmarks on an unadjusted basis. Secondly, SRI funds showed slightly better risk-adjusted performance compared to proxy benchmark indices. Thirdly, SRI funds underperformed against a matched sample of traditional peers. Lastly, the FTSE/JSE SRI Equity Index underperformed against the general market equity index, but outperformed both the bonds and money market indices