Financial Performance, Costs, and Active Management of U.S. Socially Responsible Investment Funds

Responsible investors, like regular investors, need to investigate whether to actively or passively manage their investments. This especial is of interest for responsible investing as it requires additional information generation and
processing compared to more conventional investing. This study compares socially responsible investment funds in the US with a special focus on their financial performance, cost of investing, and degree of active management. We do not find persuasive evidence that actively managed socially responsible investment funds perform better than their passively managed counterparts on both an individual and aggregate basis. Only active specialist thematic socially responsible investment funds appear to generate risk-adjusted returns that overcome their expense ratios. Furthermore, we find that some active SRI
funds seem to operate as ‘closet indexers’ with a low degree of active management.

3rd Quarter 2016