Style-changing behaviour in the socially responsible mutual fund industry: consequences on financial and sustainable performance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Fernando Muñoz ◽  
María Vargas ◽  
Ruth Vicente
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Fixed Effects ◽  
Socially Responsible ◽  
Content Type ◽  
Sustainable Performance ◽  
Panel Regressions ◽  
Money Flows ◽  
Socially Responsible Mutual Funds ◽  
Performance Ranking

Purpose This study aims to examine style-deviation practices in the socially responsible mutual funds (SMRF) industry i.e. how mutual funds game their stated financial objectives to earn a higher relative performance ranking. In addition, the consequences of such practices on sustainable scores and money flows are studied. Design/methodology/approach A sample of 454 US equity SRMFs is studied. This paper uses panel regressions controlling for time and style fixed-effects. Findings This study finds that 17.60% of SRMF managers in the sample are engaged in style deviation practices. These practices positively impact the sustainable performance of SRMFs and negatively impact their financial performance. One effect offsets the other and they consequently do not affect money flows. Another finding is that only investors with lower portfolio sustainability scores do show return-chaser behaviour. Practical implications This paper reveals that SRMF managers deviating from their stated financial style face a dilemma that is non-existent for their conventional peers that is style deviation practices affect financial and sustainable performance in opposing ways, whereas SRMF investor utility depends positively on both dimensions. The findings are not conclusive about the effectiveness of style deviation practices in attracting SRMF money flows. Social implications SRMF industry has experienced tremendous growth in the past decade. The increased competition in this industry has led managers to strive to attract investors, sometimes by relying on irregular practices that enhance their portfolio results. Regulators should consider how to avoid such perverse behaviour with a view to improving mutual funds transparency. Originality/value This is the first research that analyses style deviation practices and their consequences for the SRMF industry.

Water-related mutual funds: investment performance and social role

2015 ◽  
Vol 11 (3) ◽  
pp. 502-512 ◽  
Author(s):  
Marta Alvarez ◽  
Javier Rodríguez
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Social Role ◽  
Individual Investors ◽  
Socially Responsible ◽  
Investment Performance ◽  
Content Type ◽  
Value Of Water ◽  
Socially Responsible Mutual Funds ◽  
Open Question

Purpose – The purpose of this paper is to examine the performance and diversification value of water-related funds. As pollution, climate change and accelerated population growth threaten water resources worldwide, such resources have become a sought-after asset. For most investors, it is impractical to physically hold water as part of a portfolio; therefore, an open question is how to better gain exposure to this asset. The authors propose a look at water-related mutual funds, an issue not found addressed in the literature. In addition to the investment potential of these funds, investors might be drawn to them as part of a more comprehensive socially responsible agenda. Design/methodology/approach – In the present study, the authors identify and measure the risk-adjusted performance and diversification value of open-end funds dedicated to investments in water-related securities. Jensen’s alpha is used to measure risk-adjusted performance, whereas diversification value is examined by implementing a methodology widely used in the mutual fund literature. Findings – Consistent with previous studies on the performance of ethical or socially responsible mutual funds, the authors found that their sample of water-related mutual funds neither outperform nor underperform two benchmarks. However, the authors also found that they offer potential diversification gains for international mutual funds’ portfolios. Research limitations/implications – Open-end water-related mutual funds have only been recently created, and currently, very few funds are available to investors. These facts limit the sample size and the length of the return series examined. Originality/value – The authors have not found a paper that examines the performance and diversification value of water-related mutual funds. These funds present themselves as a practical way for individual investors to gain exposure to the commodity of water.

Under pressure: exploring pressures for corporate social responsibility in mutual funds

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Caddie Putnam Rankin
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Mutual Funds ◽  
Mutual Fund ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Industry Standards ◽  
Corporate Social ◽  
Depth Interviews

PurposeThis empirical study seeks to understand how mutual fund firms interpret conflicting pressures to conform or differentiate in the context of corporate social responsibility (CSR). Research suggests that organizations engage in practices that conform to industry standards in order to be seen as legitimate members of their industry. Other studies suggest that organizations differentiate themselves in order to compete and outperform their rivals. Pressures for organizational conformity and differentiation are explored in two types of organizations in the mutual fund industry: socially responsible investment (SRI) and non-SRI firms.Design/methodology/approachThe research is based on qualitative in-depth interviews with twenty-six mutual funds.FindingsThe analysis revealed that pressures for conformity and differentiation were salient among mutual fund executives but emphasized differently for the two types of mutual funds.Originality/valueThe study concluded by suggesting SRI firms use both strategies of conformity and differentiation to amplify the message that they adhere to the values of CSR.

Herding in the mutual fund industry: evidence from Chile

2014 ◽  
Vol 27 (1) ◽  
pp. 10-29 ◽  
Author(s):  
Jaime F. Lavin ◽  
Nicolás S. Magner
Keyword(s):  
Mutual Funds ◽  
Behavioral Problems ◽  
Mutual Fund ◽  
International Markets ◽  
Herd Behavior ◽  
Information Efficiency ◽  
Content Type ◽  
Equity Mutual Funds ◽  
Panel Regressions ◽  
Fixed And Random Effects

Purpose The purpose of this paper is to identify elements of intentional herd behavior (HB), differentiating it from spurious, or unintentional HB. Design/methodology/approach Using a panel of 50 stocks belonging to 18 Chilean equity mutual funds between December 2002 and October 2009, with manually collected data regarding physical positions of monthly purchases and sales, the authors calculate the level of HB and, by applying panel regressions with fixed and random effects, analyze the factors that determine this behavior, classifying them as agency, information, efficiency and behavioral problems. Findings The research establishes that among Chilean equity mutual funds, there is a herding of 2.8 percent, implying that for 100 funds trading a certain stock, 53 go in the same direction and 47 in another. This effect increases during widespread market dips and when stocks become fashionable, attracting market attention. This behavior is not merely spurious, associated with variables that predict returns, but also has an intentional component, related to agency problems and information, and a behavioral component, related to investors’ biases and beliefs. Originality/value The paper is original because, despite existing evidence of herding in international markets, it has been little quantified or studied in emerging markets. In addition, the literature does not distinguish between spurious and intentional HB, nor does it test different hypotheses jointly to explain the phenomenon.

Investor reactions to socially responsible investment

2015 ◽  
Vol 53 (3) ◽  
pp. 571-604 ◽  
Author(s):  
Carmen Pilar Martí-Ballester
Keyword(s):  
Mutual Fund ◽  
Fixed Effects ◽  
Time Horizon ◽  
Pension Plan ◽  
Pension Plans ◽  
Socially Responsible Investment ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Management Fees

Purpose – The purpose of this paper is to analyze investor reactions to ethical screening by pension plan managers. Design/methodology/approach – The author presents a sample consisting of data corresponding to 573 pension plans in relation to such aspects as financial performance, inception date, asset size, number of participants, custodial and management fees, and whether their managers adopt ethical screening or give part of their profits to social projects. On this data the author implements the fixed effects panel data model proposed by Vogelsang (2012). Findings – The results obtained indicate that investors/consumers prefer traditional or solidarity pension plans to ethical pension plans. Furthermore, the findings show that ethical investors/consumers are more (less) sensitive to positive (negative) lagged returns than caring and traditional consumers, causing traditional consumers to contribute to pension plans that they already own. Research limitations/implications – The author does not know what types of environmental, social and corporate governance criteria have been adopted by ethical pension plan managers and the weight given to each of these criteria for selecting the stock of the firms in their portfolios that could influence in the investors’ behaviour. Practical implications – The results obtained in the current paper show that investors invest less money in ethical pension plans than in traditional and solidarity pension plans; this could be due to the lack of information for their part. To solve this, management companies could increase the transparency about their corporate social responsibility (CSR) investments to encourage investors to invest in ethical products so these lead to raising CSR standards in companies, and therefore, sustainable development. Social implications – The Spanish socially responsible investment retail market is still at an early phase of development, and regulators should promote it in order to encourage firms to adopt business activities that take into account societal concerns. Originality/value – This paper provides new evidence in a field little analysed. This paper contributes to the existing literature by focusing on examining the behaviour of pension funds investors whose investment time horizon is in the long-term while previous literature focus on analysing behaviour of mutual fund investors whose investment time horizon is in the short/medium term what could cause different investors’ behaviour.

Sustainability-themed mutual funds: an empirical examination of risk and performance

2018 ◽  
Vol 19 (3) ◽  
pp. 247-261 ◽  
Author(s):  
Federica Ielasi ◽  
Monica Rossolini ◽  
Sara Limberti
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Investment Strategies ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Fund Managers ◽  
And Performance ◽  
Sustainable And Responsible Investment ◽  
Ethical Funds

PurposeThis paper aims to analyze the portfolio characteristics and the performance measures of sustainability-themed mutual funds, compared to ethical mutual funds that implement different sustainable and responsible investment strategies.Design/methodology/approachThe study refers to a European sample of 106 ethical funds and 51 sustainability-themed funds. The monthly performance of each fund is downloaded from Bloomberg for the period from January 1996 to December 2015. By applying a Fama and French (1993) three-factor model, the authors overcome the limits of a capital asset pricing model (CAPM) based-single index model, to compare the performance of the two categories of funds.FindingsSustainability-themed funds do not differ significantly from ethical funds in terms of portfolio attributes, except for market capitalization, age and net asset value. Regarding performance measures, the results shows that sustainability-themed funds have a lower underperformance than ethical funds (as measured by Jensen’s alpha), whereas the samples do not differ in terms of market risk (as measured by Beta coefficient). The idiosyncratic risk of sustainability-themed funds is positively influenced by the specific portfolio strategies. The sustainability-themed funds show a higher concentration in the industrial sector and a lower exposure to financial sector than ethical funds; in terms of geographical strategy, they are more global and international oriented; they mainly focus on small caps and value stocks.Research limitations/implicationsThe different sustainable and responsible investment strategies can be applied simultaneously and in a growing number of possible combinations. Mutual fund managers can consider thematic approach as an efficient opportunity for reconciling financial performance and economic sustainability. It is demonstrated that sustainability-themed funds adopt a portfolio strategy significantly different from ethical funds and from the environmental, social and governance benchmarks. Mutual fund managers implement a thematic specialization without any negative impact on the funds returns compared to ethical funds; actually, with a proper diversified portfolio, they are able to reduce idiosyncratic risk.Originality/valueThe analysis is extremely innovative, especially for the thematic sample. During the past 15 years, literature about sustainable and responsible investment has been focused especially on the differences in terms of risk and performance between socially responsible and conventional funds. This paper, starting from the methodology applied in these studies, wants to compare two different types of socially responsible strategies, with a specific focus on sustainability-themed mutual funds, given their exponential growth in the past few years.

Mutual Fund Attributes and Investor Behavior

2007 ◽  
Vol 42 (3) ◽  
pp. 683-708 ◽  
Author(s):  
Nicolas P. B. Bollen
Keyword(s):  
Mutual Funds ◽  
Strong Evidence ◽  
Mutual Fund ◽  
Cash Flows ◽  
Investor Behavior ◽  
Anecdotal Evidence ◽  
Socially Responsible ◽  
Socially Responsible Mutual Funds

AbstractI study the dynamics of investor cash flows in socially responsible mutual funds. Consistent with anecdotal evidence of loyalty, the monthly volatility of investor cash flows is lower in socially responsible funds than in conventional funds. I find strong evidence that cash flows into socially responsible funds are more sensitive to lagged positive returns than cash flows into conventional funds, and weaker evidence that cash outflows from socially responsible funds are less sensitive to lagged negative returns. These results indicate that investors derive utility from the socially responsible attribute, especially when returns are positive.

Saving green while going green

2019 ◽  
Vol 45 (1) ◽  
pp. 21-35
Author(s):  
C. Edward Chang ◽  
Thomas M. Krueger ◽  
H. Doug Witte
Keyword(s):  
Mutual Funds ◽  
Performance Measures ◽  
Mutual Fund ◽  
Research Question ◽  
Turnover Rates ◽  
Operating Characteristics ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investing ◽  
And Performance

Purpose The purpose of this paper is to examine the operating characteristics as well as risk and performance measures of all available self-proclaimed socially responsible funds (hereafter SRFs) in the USA over the ten-year (2007–2016) period. The first research question addressed is: Do SRFs perform as well as the average of all mutual funds in their respective categories? The second research question addressed is: Are SRF expense ratios correlated with fund performance? Design/methodology/approach This study analyzes all socially responsible equity mutual funds, as self-reported to Morningstar. This paper empirically compares operating characteristics and performance measures of SRFs relative to category averages in the US mutual fund industry. Operating characteristics include expense ratios and annual turnover rates. Performance measures include conventional return, risk and risk-adjusted return measures. Findings Although prior research suggests that socially responsible investing (SRI) indexes and SRI-friendly stocks have favorable returns, this study finds that these self-proclaimed SRFs underperform the average of all mutual funds in matched equity categories. However, this study demonstrates that a simple filter based on expense ratios can identify those SRFs that will enable investors to do quite well while doing good. Originality/value The contribution of this paper is twofold. First, the authors report that self-proclaimed SRFs, as a whole, have not generated competitive returns relative to other mutual funds in the same categories over the past ten years. This result contradicts the notion that socially responsible investors do not give up return performance when investing with their conscience. Second, the authors find that those SRFs with expense ratios in the lowest quartile of their respective category have significantly higher risk-adjusted returns and significantly lower turnover than category averages. Thus, by focusing on SRFs with low-expense ratios, socially responsible investors can do quite well while doing good.

scholarly journals Socially Responsible Mutual Funds – A Profitable Way of Investing

2013 ◽  
Vol 60 (1) ◽  
pp. 202-214 ◽  
Author(s):  
Indre Slapikaite ◽  
Rima Tamosiuniene
Keyword(s):  
Comparative Analysis ◽  
Mutual Funds ◽  
Mutual Fund ◽  
Social Performance ◽  
Socially Responsible ◽  
Socially Responsible Mutual Funds

Abstract In the presented paper there is analyzed the idea, essence and strategies of socially reponsible investing, there is also made a review of socially responsible mutual fund market worldwide and in the Baltics, and made a research on the relation between financial and social performance of mutual funds. Finally, there are presented results of a comparative analysis of S&P 500 TR and Index Morningstar Moderate Target Risk to their benchmarks. The presented results show the trends of socially responsible market and the effectiveness of socially responsible mutual funds comparing to their benchmarks. The specifics of socially responsible mutual market in the Baltics and research of the link between financial and social performances of mutual funds may lead to the further scientific researches.

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