Socially conscious investing: do good deeds get punished?

Purpose This paper aims to examine the performance of select “socially conscious” (SC) mutual funds and a control group of conventional funds during recent bullish and bearish financial markets. It aims at exploring the interface of these funds’ historical returns and selectivity of their investment screening. Design/methodology/approach The authors’ data come from Morningstar Direct and focuses on “equity” funds/class A shares only. The authors controlled for age, expense ratio, size and management turnover in comparing SC and mutual funds’ returns. Findings SC funds underperformed conventional funds in both expansionary and recessionary periods and in short and long term. Paradoxically, SC funds’ return generally improved with the number of social screens adopted. The gap in returns between SC, conventional funds and indices of market return narrowed as investment horizon became longer and also during boom market conditions, suggesting that doing good need not come at the expense of doing well. Research limitations/implications The authors’ study focused on class A shares only. Practical implications In choosing SC funds, investors need to focus on expense ratio and management turnover which seem to influence returns more. Neither age nor size of SC funds seem to have affected returns in systematic and statistically significant way. Originality/value This paper provides the most recent scorecard of SC funds’ performance, compared to similar conventional funds and market return, since the 2007 global financial crisis.