Despite more than three years of down markets, the percentage of all socially and environmentally responsible mutual funds earning the two highest marks from either or both Lipper, Inc. and Morningstar actually increased slightly by the end of calendar year 2002, according to new data released today from the nonprofit Social Investment Forum.
Nearly two-thirds (65 percent) of the 51 screened funds tracked by the Forum earned one of the two highest rankings for performance from Lipper and/or Morningstar. This compared to the 63 percent of all such funds getting top marks through the end of calendar year 2002. Of the 18 screened funds tracked by the Social Investment Forum with $100 million or more in assets, 13 out of 18 (72 percent) received top performance marks from one or both of the tracking firms through 2002.
The new data show that socially responsible mutual funds significantly outperform the universe of mutual funds when it comes to earning Morningstar ratings. A total of 43 percent of the screened funds tracked by the Forum received 4 or 5 stars from Morningstar versus 32.5 percent of the general mutual fund universe.
More proof of the robust nature of screened mutual funds: Socially responsible mutual funds grew on a net basis in 2002 while the rest of the mutual fund industry contracted. According to Lipper, socially responsible mutual funds saw net inflows of $1.5 billion during the year 2002. Over the same time, U.S. diversified equity funds posted outflows of nearly $10.5 billion.
Social Investment Forum President Tim Smith said: "During 2002, the country faced pending war, countless corporate scandals and a slumping stock market. Nonetheless, socially and environmentally responsible funds continued to receive high marks from the leading tracking agencies. This is persuasive proof that investing in companies with good social and environmental track records is consistent with financial performance. As a result, we can say categorically that socially responsible funds can go toe to toe with the broad universe of mutual funds and, in fact, do better than other types of funds."
Alisa Gravitz, executive director of Co-op America, a non-profit investor education organization, said: "Due to the recent wave of corporate scandals, were seeing more and more investors concerned about the companies in which they invest. Theyre more active investors who demand that companies have ethical financial, social and environmental practices. Active involvement in shareholder advocacy has gone the roof over the past few years. Socially responsible investing provides the best way for investors to demand better financial and ethical performance from companies."
HIGHLIGHTS OF NEW DATA ON SCREENED FUND PERFORMANCE
The Forum assessed the performance of socially responsible mutual funds through the end of 2002 by looking at comprehensive data from two sources: Lipper, Inc. and Morningstar. Major findings of the Forum’s analysis were as follows:
Nearly two-thirds of the full universe of social funds earn highest ratings. Of the 51 socially screened funds with a three-year performance record tracked by the Social Investment Forum, 33 (65 percent) received the highest marks from either Lipper or Morningstar. According to the Forum, 25 (49 percent) of the funds tracked received an "A" or "B" ranking from Lipper based on one- and/or three-year total returns within their investment categories. A total of 22 screened funds (43 percent) earned either four or five stars from Morningstar for at least three-year risk-adjusted performance. A number of the funds earned top rankings from both organizations. Both the Lipper and Morningstar analyses are based on time periods ending December 31, 2002.
Nearly three out four of the largest socially responsible funds get top ratings. Of the socially screened funds with more than $100 million in assets, 13 of 18 (72 percent) received top rankings from either or both Lipper and Morningstar. 12 earned an "A" or "B" ranking from Lipper, based on one- and/or three-year total returns in their investment categories. Eight received either four- or five-star ratings from Morningstar for three-year risk adjusted performance.
Socially responsible index outperforms the S&P 500 both during 2002 and on a total returns basis for 10 years. For the 10-year period ending December 31, 2002, total annualized returns for the Domini 400 Social Index (DSI 400) showed a gain of almost 10 percent (9.99 percent), while the S&P 500 rose 9.35 percent over the same period. For 2002, the DSI 400 fell 20.10 percent while the S&P fell a full 2 percent further, losing 22.09 percent.
Top-performing socially screened funds found in key asset classes. Based on data from Lipper and Morningstar, socially and environmentally responsible mutual funds earned top ratings in most major sectors. Socially screened funds were represented in global, international, domestic equity, balanced and fixed-income categories.