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Comparing SRI funds to conventional funds using a PCA methodology

Author

Listed:
  • Christine Helliar

    (University of South Australia)

  • Barbara Petracci

    (University of South Australia)

  • Nongnuch Tantisantiwong

    (University of South Australia)

Abstract

In this paper, we investigate characteristic differences between Socially Responsible Investment (SRI) funds and conventional funds across 35 different categories, including previously unexplored areas, such as fund manager skills and investment strategies. Further, we examine SRI and conventional funds globally rather than from just one country (e.g., US) or one region (e.g., Europe), covering funds listed in 22 different countries. We also adopt a new Principal Component Analysis (PCA) methodology for matching SRI funds against their conventional counterparts that significantly increases the sample size from previous studies, reducing selection bias and possibly explaining contradictory findings in the prior literature. Contributing to the literature, our findings show that: (i) SRI funds have more diversified portfolios than conventional funds; (ii) SRI funds have lower cash holdings while investing more in US equities; and (iii) SRI fund managers charge a smaller fee and are more successful in managing their portfolios. This is reassuring for investors who invest in SRI funds and for the future health and sustainability of the planet.

Suggested Citation

  • Christine Helliar & Barbara Petracci & Nongnuch Tantisantiwong, 2022. "Comparing SRI funds to conventional funds using a PCA methodology," Journal of Asset Management, Palgrave Macmillan, vol. 23(7), pages 581-595, December.
    • Handle: RePEc:pal:assmgt:v:23:y:2022:i:7:d:10.1057_s41260-022-00264-2
    DOI: 10.1057/s41260-022-00264-2
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    Cited by:

    1. Christiansen, Charlotte & Jansson, Thomas & Kallestrup-Lamb, Malene & Noren, Vicke, 2023. "Households' investments in socially responsible mutual funds," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 46-67.

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