Many socially screened equity investments outperformed their benchmarks in the third quarter and the five- and 10-year periods ended Oct. 31.
According to data from the Social Investment Forum, Washington, a non-profit organization promoting socially responsible investing, 11 of the 15 socially screened domestic equity mutual funds with more than $100 million each in assets outperformed the -14.7% return of the Standard & Poor's 500 index and the 14-14.2% return of the Domini 400 Social index during the quarter.
With returns of 1.8% and 1.9% respectively, the $560 million Ariel Appreciation Fund and the $407 million Ariel Fund were the only socially responsible mutual funds to garner positive returns in the third quarter.
The 15 funds have a combined $4.8 billion in assets.
The Domini index return outperformed the S&P 500 index by 104 basis points in the 10-year period ended Oct. 31, with a 13.82% compound annual rate of return.
For five years, the Domini 400 returned an annualized 11.03%; the S&P 500, 10.08%. For the three-year period prior, the Domini trailed the S&P by 32 basis points, returning -0.4%.
Meanwhile, five simulated portfolios made up entirely of socially screened investments returned between 2.7% and 4.4% for the second quarter, vs. 5.9% or the S&P 500. The portfolios were created by Elkhorn, Wis.-based Capital Missions Co. Susan Davis, president of Capital Missions, which creates networks of institutions seeking positive investment returns in a socially responsible manner, said portfolios were developed in domestic and international equities, fixed income, hedge funds, private equity, community development funds and cash.
"It's a myth that more freedom equals more growth," said Daniel Boone III, managing partner of Atlanta Capital Management, Atlanta, which serves as subadviser to the $340 million Calvert Social Investment Fund - Equity. He said many institutional investors mistakenly think social investing restrictions ultimately lower potential returns.
The idea stems from the 1980s, he said, when numerous profitable investments were excluded through screens for companies that did business in apartheid-ruled South Africa.
Although socially responsible investors have a large field of domestic equity options to choose from, other options are limited.
Joan Deneher, quantitative team member at TIAA-CREF, said that while she sees an increased interest in bond investments, the investments remain scarce. Ms. Deneher is part of the management team of TIAA-CREF's $4.1 billion Social Choice Account, a separately managed balanced portfolio.
Of the seven fixed-income funds listed in the SIF report, none had assets of more than $96.4 million.