“Socially Responsible” investing is based on the premise that sometimes you can do well by doing good. A recent study evaluated how well it performs.
There are two forms of socially responsible investing: “positive” screens that tilt portfolios towards companies that promote a diverse workforce, invest in their communities, and have vigorous consumer advocacy; and “negative” screens that exclude stocks of companies associated with alcohol, tobacco, or other factors.
The results were striking. Portfolios that tilted towards responsible companies outperformed the market, while portfolios that shunned certain businesses underperformed. From ’92 to 2007 the “positively” screened stocks added about 0.5% annually, while the negative screen lost about 3% per year.
This makes intuitive sense. By doing good, managers can help build up their businesses. But a company’s line of business may not make it a bad investment. And how we live is often more important than what we do.
Douglas R. Tengdin, CFA
Chief Investment Officer
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