2011 Key Trends in Socially Responsible Investment Funds

Introduction

The social investing fund industry has seen phenomenal growth in recent years The accelerating growth of asset inflows through 2010 and 2011 demonstrates strong demand for the industry. The Eurekahedge Socially Responsible Investments (SRI) database contains more than 1000 SRI funds with total combined assets of more than US$200 billion.

This report aims to look at the current structure of the socially responsible investing fund space; it also includes a comparative analysis of the performance of SRI funds – both against their peers as well as other SRI-centric investment vehicles.

Most SRI funds are structured as mutual funds/unit trusts, as shown in figure 1 below. However there has been an increase in other structures; such as funds of SRI funds, alternatives such as private equity, as well as funds of funds and structured products.

As seen in figure 1, the breakdown of SRI funds are divided according to the asset classes that they invest in. Two-thirds of the funds invest in equities partly due to the abundant liquidity of equities, continued retail investors risk appetite for stocks and the adherence to pre-defined equity allocation in the funds’ guidelines. The breakdown of geographic investment mandates provides a more equitable between the top three mandates as shown in figure 2.

Figure 1: SRI fund investments – May 2011

Figure 2: Geographic mandates – May 2011

The distribution of head office locations in the SRI fund industry shows a skew towards the United States with 28% of the funds worldwide located in the United States and the remainder spread throughout various parts of Europe. Notable in their absence are Asia-based SRI funds, although this is not surprising since the region accounts for only 5.6% of the global SRI-fund assets. Figure 3 shows the distribution of SRI funds population by head office location.

Figure 3: Head office location by number of funds – May 2011

Performance Review

Figure 4: Performance of SRI funds vs other indices

As shown in Figure 4, the performance of the Eurekahedge SRI Fund Index closely mirrors that of the MSCI World Index and the DJ Sustainability Index, suggesting that investing with SRIs does not affect portfolio performance. In fact it should be noted that:

a)     SRI funds have displayed less volatility of returns while matching the performance of equities

b)    Eurekahedge SRI Fund Index has superior downside protection or a smaller maximum drawdown loss over the MSCI World Index and DJ Sustainability Index over the last few years.

Table 1: Performance of SRI funds vs other investments

	Eurekahedge SRI Fund Index	MSCI AC World Index USD	DJ Sustainability Total USD
2010 returns	7.26%	12.14%	6.52%
2011 YTD returns	2.09%	5.34%	7.73%
3 year annualised returns	-0.65%	-2.69%	-2.50%

Source: Eurekahedge