Performance Evaluation of U.S.

Socially Responsible Mutual Funds: Revisiting Doing Good and Doing Well
C. Edward Chang, Missouri State University H. Doug Witte, Missouri State University

Abstract

Do socially responsible funds, as a whole, perform as well as the average of all mutual funds in their respective categories? This paper examines fund characteristics as well as risk and performance measures of all available socially responsible funds (SRFs) in the U.S. mutual fund industry over the last fteen years. The contribution of this paper is two unique ndings. First, although SRFs have had a relative advantage in terms of lower expense ratios, lower annual turnover rates, lower tax cost ratios, and lower risk, SRFs also exhibit lower returns, and two risk-adjusted return measures indicate SRFs have inferior reward-to-risk performance. In particular, domestic stock SRFs have not generated competitive returns relative to conventional funds in the same categories over the past ten to fteen years. These results contrast those found in the extant SRI literature which suggest socially responsible investing has little or no cost. Second, a ner partitioning by fund type reveals not all SRFs have similar relative performance. SRFs in balanced fund and xed-income fund categories, especially during the past three years, have performed better than the category averages with lower risk, higher returns, and higher risk-adjusted returns. This suggests the costs of socially responsible investing are not homogenous.
Keywords: Finance/investments, performance evaluation, socially responsible mutual funds

According to the Social Investment Forum, at the end of 2007, more than $1.9 trillion worth of assets in the U.S. were under management utilizing some form of social screening. This gure represents 8 percent of all U.S. assets under management. Socially responsible mutual funds in the U.S. manage nearly $160 billion worth of assets. This paper examines fund characteristics as well as risk and performance measures of all available socially responsible funds in the U.S. mutual fund industry over the last fteen years. The principal issue to be addressed is: Do socially responsible funds (hereafter SRFs) as a whole perform as well as the average of all mutual funds in their respective categories?

Introduction

The contribution of this paper is two unique ndings. We nd that SRFs, as a whole, and domestic stock SRFs in particular, have not generated competitive returns relative to other mutual funds in the same categories over the past ten to fteen years. These results contrast those found in the extant SRI literature which suggest socially responsible investing has little or no cost. Second, a ner partitioning by fund type reveals variation in SRF performance. SRFs in balanced fund and xed-income fund categories, especially during the past three years, have performed better than the category averages with lower risk, higher returns, and higher riskadjusted returns.

Socially responsible funds invest according to largely social, non-economic, guidelines. Potential investments may be screened for inclusion (positive screens) based on criteria such as environmental responsibility, employee relations, or product safety. Funds may also screen for exclusion (negative screens) based on a companys involvement in promoting, for example, alcohol, tobacco, gambling, or involvement in the defense industry. Proponents (Camejo 2002; Harrington 1992) of such funds believe it is possible for investors to do well while also doing good. They suggest that socially responsible investing may produce higher risk-adjusted portfolio returns relative to using all available
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stocks in the equity universe (Guerard 1997a, 1997b). Opponents argue that the pursuit of a social agenda in the capital market may require a nancial sacrice. At the rm level, complying with social criteria increases operating costs and can ties critical to their future success as possible. Diversication costs may cut into these benets because the social screens create portfolios that are unbalanced with respect to industry weightings, average market capitalization, and book-to-market ratios relative to their relative to the all-inclusive Dow Jones Europe and Americas indexes. This suggests investors could have pursued passive equity investing, based on broad SRI benchmarks, without sacricing the returns achievable on diversied portfolios of the same types of securities. Other studies have focused on socially responsibility at the rm level. These studies sort individual stocks into portfolios (Diltz 1995; Corson and Van Dyck 1992) based on one or more social responsibility criteria and nd that social screens neither help nor hurt performance. A separate set of studies focus on the return performance of mutual funds designated as socially responsible (SRFs) relative to other conventional funds that do not screen their holdings. One of the earliest, Hamilton, Jo and Statman (1993), nds the returns to socially responsible mutual funds are extremely similar to convention mutual fund returns. The authors conclude that the market does not seem to price social responsibility characteristics, suggesting that while doing good may not allow an investor to do well relative to the benchmark, it doesnt cost anything either. Similar studies (notably Asmundson and Foerster 2001; Bello 2005; Goldreyer, Ahmed, and Diltz 1999; Schroder 2004; Statman 2000) also typically nd that the social screening SRFs undertake neither helps nor hurts portfolio performance. Proper benchmarking of fund returns is an issue that has more recently been investigated. Bauer, Otten, and Rad (2006) and Bauer, Koedijk, and Otten (2005) estimate fund alphas using the more elaborate four-factor Carhart (1997) model, which incorporates a momentum factor. They nd SRF alpha estimates are generally higher when estimated using the Carhart model relative to the estimates from a single-factor market model. However, neither Bauer, et al. paper documents a signicant alpha for a dierence portfolio (SRF return minus conventional fund return) using either benchmark-

...SRFs, as a whole, appear to underperform conventional funds. However, when broken down by fund type, we document that some SRF types actually deliver better returns.
put a rm at a disadvantage relative to non-complying rivals (Aupperle, Carroll, and Hareld 1985; McGuire, Sundgren, and Schneeweis 1988; Ullmann 1985). At the portfolio level, not only are SRFs selecting rms that likely have higher operating costs, but they are also limiting their pool of available investments. Conned to a smaller subset of investment choices, SRFs may carry substantial sector biases, thus increasing nonsystematic risk (Kurtz and DiBartolomeo 1996). Rudd (1981) argues that the loss of diversication introduced by social screens increases a screened portfolios covariation in returns unrelated to the market. Thus, the loss of diversication is unlikely to be oset by an increase in returns. Along this same line of argument, in the context of the traditional mean-variance framework (Sharpe 1965), limiting the pool of available investments cannot result in an ecient frontier that provides a higher rewardto-risk ratio than the market portfolio. Kurtz (1997) suggests that socially responsible investing may be thought of as a tradeo of performance benets and diversication costs. Benets may take the form of more competent and growth-minded management being more inclined to pursue better environmental and corporate citizenship records as well as good employee relations. Social responsibility may be indicative of management seeking to improve relations with as many parunscreened counterparts. Clow (1999) notes that social and environmental screens often result in the exclusion of old-line industrial manufacturers, generating a growth and technology bias in screened portfolios. Grossman and Sharpe (1986) compare the performance of a South Africafree NYSE portfolio to the unscreened NYSE portfolio. They nd that the screened portfolio generated superior returns. However, the outperformance was entirely attributed to the fact that the screened portfolio disproportionately contained small-cap stocks which outperformed large-caps over the time frame analyzed. Thus, an issue to keep in mind is that underdiversication of SRFs can actually lead to periods of superior performance not attributable to a priced social factor. Rather, there are simply times where small-caps beat large-caps, growth stocks beat value stocks, and socially responsible investment returns appear very competitive. Academic researchers have conducted many empirical studies analyzing the returns to socially responsible investing. Some studies have focused on the performance of the Domini Social Index (Corson and Van Dyck 1992; Statman 2000), and nd the returns comparable to the S&P 500 index. Similarly, Plantinga, Scholtens and Brunia (2002) analyze the Dow Jones European and Americas sustainable growth indexes and nd no significant dierences in their mean returns

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Table 1 Numbers of Available Funds (with at least three-year data) Morningstar Category Domestic Stock Funds Large blend Large growth Large value Mid-cap blend Mid-cap growth Mid-cap value Small blend Small growth Small value International Stock Funds Foreign large blend World stock Balanced Funds Conservative allocation Moderate allocation Target-date 2000-2014 Target-date 2015-2029 Target-date 2030+ Fixed-Income Funds High yield bond Intermediate-term bond Short-term bond Total With 3-Year Data 33 30 13 9 15 1 5 7 3 10 2 1 14 4 8 8 3 16 2 184 Socially Responsible Funds With With 5-Year 10-Year Data Data 33 30 11 5 15 1 5 7 17 17 1 3 12 1 2 5 With 15-Year Data 8 11 2 With 3-Year Data 1,664 1,442 1,174 424 827 287 529 681 336 557 460 407 905 129 118 152 464 974 383 11,913 All Mutual Funds With With 5-Year 10-Year Data Data 1,314 1,207 926 338 694 215 415 561 261 459 393 265 712 45 31 42 401 830 291 9,400 621 564 432 157 305 64 175 268 98 231 198 126 416 17 7 9 205 433 164 4,490 With 15-Year Data n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

10 2 1 14

7 1

4 1

10

10

3 16 2 155

11 2 89

7 43

As of March 31, 2008 from Morningstars Principia. Notes: n.a.: not available to the authors. Shaded cells indicate funds that are both category- and time-period matched and were used for comparisons.

ing model. Taken together, these two studies show that SRFs in the U.S., U.K., Germany, and Australia deliver returns not signicantly dierent from returns to conventional funds. Our analysis ts into this last group of studies in terms of our similar focus on SRF return performance. We nd that SRFs, as a whole, appear to underperform conventional funds. However, when broken down by fund type, we document that some SRF types actually deliver better returns. These results contrast those found in the extant SRI literature and may be due in part to our use, uniquely, of the SRFs sample from the Morningstar Principia database. The Morningstar database allows us to

compare additional fund characteristics that are likely important to investors turnover, tax cost ratios, and expense ratios. To our knowledge, the turnover rates and tax cost ratios of SRFs vis-vis conventional funds have not been previously reported. Also, Morningstars proprietary star ratings for fund return, risk, and risk-adjusted return provide additional metrics to evaluate fund performance beyond traditional performance measures (e.g., alpha and Sharpe ratio). The star ratings are likely more reective of the manner in which typical fund investors evaluate performance. We nd that the star ratings generally conrm the results found using traditional performance measures.

Data and Methodology

This study analyzes all SRFs in the U.S. mutual fund industry having at least three-year data available. Additionally, nearly one-quarter of all SRFs have up to fteen-year data available. All data for individual mutual funds and category averages were collected from Morningstars Principia database as of March 31, 2008. Table 1 shows the breakdowns of the data used. Of the 184 SRFs with three-year data, 116 are in nine categories of domestic stock funds, twelve are in two categories of international stock funds, thirty-ve are in ve categories of balanced funds, and twenty-one are in
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three categories of xed-income funds. For proper comparisons, we analyze SRFs average measures relative to the appropriate category averages based on matched periods (three-, ve-, tenand fteen-year). This paper empirically compares operating characteristics and performance measures of SRFs relative to category averages in the U.S. mutual fund industry. Operating characteristics collected, averaged, and reported include: expense ratios, annual turnover rates, and tax cost ratios. Expense ratio is the annual fee all mutual funds or ETFs charge investors. Expense ratio is expressed as the percentage of assets deducted each scal year for fund expenses, including 12b-1 fees, management fees, administrative fees, operating costs, and all other assetbased costs incurred by the fund. Turnover rate or ratio is a measure of the funds trading activity. Turnover ratio is computed taking the lesser of purchases or sales (excluding all securities with maturities of less than one year) and dividing by average monthly net assets. A turnover ratio of 100 percent does not necessarily suggest all securities in the portfolio have been traded. The fund might have held 50 percent of all positions for the past ve years and turned over the other 50 percent of all positions twice throughout the year. A low turnover rate would loosely indicate a buy-and-hold strategy. High turnover would suggest a more active investment strategy involving considerable buying and selling of securities. The turnover gure is culled directly from the nancial highlights of the funds annual report and is not calculated by Morningstar. Morningstars tax cost ratio measures how much a funds annualized return is reduced by the taxes investors pay on distributions. Funds regularly distribute dividends and capital gains to their investors. Investors then must pay taxes on those distributions during the year they are received. Like an expense ratio, the tax cost ratio is usually concentrated in the range between
Table 2 Expense Ratios (%), Annual Turnover Rates (%) and Three-Year Tax Cost Ratios (%) Expense Ratio Morningstar Category Domestic stock funds T-test (probability) International Stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability) SRFs 1.80 0.46155 1.59 0.22808 1.18 0.04336** 1.18 0.34808 1.51 0.05960* 1.63 1.29 1.44 1.90 AMFs 1.79 Annual Turnover SRFs 71.05 0.02182** 38.65 0.24563 23.50 0.02696** 79.33 0.09967* 56.43 0.00046*** 82.89 133.33 45.20 64.50 AMFs 91.11 Tax Cost Ratio SRFs 0.80 0.03299** 1.05 0.38074 1.19 0.17552 1.89 0.13602 1.10 0.02806** 1.43 1.80 1.27 1.23 AMFs 1.45

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds. Tax Cost Ratio reflects threeyear average (April 2005 - March 2008).

zero and ve percent. A zero percent tax cost ratio indicates the fund had no taxable distributions. A higher tax cost ratio indicates the fund was less tax ecient. Performance measures include conventional return, risk, and risk-adjusted return measures as suggested by Bodie, Kane and Marcus (2007). Bauer, Koedijk, and Otten (2005) demonstrate that multi-factor models (i.e., performance attribution models) that incorporate investment style factors including a momentum factor better explain monthly mutual fund returns relative to a CAPM-based single-index model. Data limitations in the form of Morningstar not including a momentum category preclude us from undertaking an explicit multi-factor analysis. However, our data are not likely to suffer from a benchmark problem for two reasons. First, Morningstar categorizes funds according to a style box which includes market capitalization and investment style (value, growth or blend). Thus, our risk-adjusted return analysis does nominally incorporate beta, rm size, and investment style. Second, our returns are yearly, going back fteen years in some cases. Presumably, over

longer horizons, the SRFs we analyze as well as the conventional funds in the same category to which they are benchmarked will have had periods of positive and negative momentum. The relevance of momentum in dierentiating longer-term fund performance is likely more minimal. Average annual returns are measured by mutual funds net asset value (NAV) returns. Standard deviation (a statistical measurement of dispersion about an average) depicts how widely a funds returns varied over a certain period of time. Investors use the deviation of historical performance to predict the range of returns most likely for a given fund. When a fund has a high standard deviation, the predicted range of performance is wide, implying greater volatility. Morningstar computes the standard deviation by using the trailing monthly total returns for the appropriate time period. All monthly standard deviations are then annualized. Standard deviation is also a component in the Sharpe ratio, a risk-adjusted return measure developed by Nobel Laureate William Sharpe. The Sharpe ratio is calculated by using both the standard deviation

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Table 3 Average Annual Returns (%) and Morningstar Return Ratings Panel A: Average Annual Return (%) 3-Year 5-Year 10-Year SRFs AMFs SRFs AMFs SRFs AMFs 3.88 13.73 5.26 12.13 10.90 18.51 12.97 18.70 3.76 5.17 5.14 5.66 0.04955** 0.00211*** 0.03189** 15-Year SRFs AMFs 8.64 0.22011 7.02 8.55 9.18

Fund Type Domestic stock funds T-test (probability) International stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability)

0.36522 6.12 5.38 0.12798 4.86 3.72 0.01153** 5.66 5.77 0.41858

0.46540 7.29 7.79 0.16249 4.98 4.63 0.20721 10.25 11.37 0.00871***

0.40376 3.85 4.45 5.20 4.68 0.08012* 4.21 5.09 0.03908**

0.10117 6.99 7.84 6.08 5.61

7.57 8.30 0.04363** 15-Year SRFs AMFs

Fund Type Domestic stock funds T-test (probability) International stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability)

Panel B: Morningstar Return Rating 3-Year 5-Year 10-Year SRFs AMFs SRFs AMFs SRFs AMFs 2.38 3.00 2.24 3.00 2.32 3.00 0.00289*** 0.00015*** 0.01885** 3.30 3.00 2.75 3.00 2.29 3.00

0.42202 3.75 3.00 0.08954* 3.87 3.00 0.05699* 3.07 3.00 0.37694

0.39758 2.68 3.00 0.25000 3.37 3.00 0.21923 2.59 3.00 0.01423**

0.25000 2.30 3.00 3.93 3.00 0.17502 2.56 3.00 0.05432*

dard deviation is a measure of a funds absolute volatility, beta is a measure of a funds sensitivity to market movements. Morningstar calculates beta by comparing a funds excess return over Treasury bills to the markets excess return over Treasury bills; A beta of 1.10 shows that the fund has performed 10 percent better than its benchmark index in up markets and 10 percent worse in down markets, assuming all other factors remain constant. A low beta signies only that the funds market-related risk is low. Beta is particularly appropriate when used to measure the risk of a combined portfolio of mutual funds. Alpha is a measure of the dierence between a funds actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates the funds underperformance, given the expectations established by the funds beta. For example, an alpha of 0.86 indicates that the fund produced a return 0.86 percent higher than its beta would predict.

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

and excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better is the funds historical risk-adjusted return performance. The Sharpe ratio is calculated over the past 36-month period by dividing a funds annualized excess returns over the riskfree rate by its annualized standard deviation. It is recalculated by Morningstar on a monthly basis. Morningstars proprietary return, risk and star (or risk-adjusted return) ratings are used to verify ndings of conventional performance measures described above. Morningstar rates funds from one to ve stars based on how well they have performed (after adjusting for risk and accounting for sales charges) in

comparison to similar funds. In each Morningstar category, the top 10 percent of funds receive ve stars (described as high), the next 22.5 percent receive four stars (above average), the middle 35 percent receive three stars (average), the next 22.5 percent receive two stars (below average), and the bottom 10 percent receive one star (low). Funds are rated for up to three time periods (three, ve, and ten years). Funds with less than three years of performance history are not rated. Return and risk ratings are done in the same manner. Two statistics from modern portfolio theory are also used to shed some light on SRFs market risks and market-risk-adjusted returns. While stan-

Expense ratios, annual turnover rates, and tax cost ratios are summarized in Table 2. SRFs as a whole appear to have lower expense ratios (1.51 percent vs. 1.63 percent), lower turnover rates (56.43 percent vs. 82.89 percent), and lower tax cost ratios (1.10 percent vs. 1.43 percent) than the averages of all mutual funds in the same Morningstar category. However, only SRFs in the balanced funds category have lower expense ratios (1.18 percent vs. 1.44 percent) while SRFs of other categories display inconclusive results. SRFs have lower expense ratios in four of the ve categories of balanced funds than category averages. The exception is that SRFs in the category of moderate allocation have higher expense ratios. SRFs in all categories have lower turnover rates, but the results from
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international stock funds are not statistically signicant. SRFs have lower turnover rates than category averages in six of the nine categories of domestic stock funds, all ve categories of international stock funds, and two of the three categories of x-income funds. Exceptions that SRFs have higher turnover rates are in mid-cap blend, mid-cap value, small blend, and shortterm bond categories. The lower overall tax cost ratio for SRFs appears to be primarily driven by the domestic stock funds that have the only signicantly lower tax cost ratio (0.80% vs. 1.45%). SRFs have lower tax cost ratios in seven of the nine categories of domestic stock funds than category averages. The two exceptions are in large value and small blend categories. Table 3 rst shows results of average annual returns over the three-, ve-, ten-, and fteen-year period ending on March 31, 2008. The results show SRFs, as a whole, have lower returns than the category averages over ve-, ten- and fteen-year periods. More specically, however, only SRFs in the domestic stock funds categories have consistently lower returns throughout the past ten years. SRFs in the categories of xedincome funds have higher returns over the three- and ten-year periods. In the three years ending on March 31, 2008, SRFs have lower returns in seven of the nine categories of domestic stock funds than category averages. The exceptions are mid-cap value funds and small blend funds. SRFs have higher returns in all three categories of xedincome funds than category averages. The Morningstar return ratings display similar ndings. Table 3 shows that SRFs, as a whole, have lower return ratings than the category averages over the ve-year period (2.59 vs. 3.00) and ten-year period (2.56 vs. 3.00). SRFs in the domestic stock funds categories have consistently lower return ratings throughout the past ten years. SRFs in the categories of balanced funds and xed-income funds, however, have higher return ratings over the threeyear period.
Table 4 Standard Deviations (%) and Morningstar Risk Ratings Panel A: Standard Deviation (%) 3-Year 5-Year SRFs AMFs SRFs AMFs 11.32 0.09213* 12.03 0.31636 5.44 0.09596* 2.86 0.27653 8.51 0.08821* 11.75 11.41 5.73 3.14 8.77 11.72 0.07651* 11.71 0.45397 5.61 0.38312 3.15 0.20625 9.19 0.05074* 12.26 11.64 5.56 3.63 9.56 10-Year SRFs AMFs 18.14 0.43975 18.21 0.28114 11.26 2.86 0.39758 15.27 0.41186 18.41 16.28 9.72 2.86 15.02

Fund Type Domestic stock funds T-test (probability) International stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability)

Fund Type Domestic stock funds T-test (probability) International stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability)

Panel B: Morningstar Risk Rating 3-Year 5-Year SRFs AMFs SRFs AMFs 2.40 3.00 2.43 3.00 0.00636*** 0.03115** 3.20 3.00 3.10 3.00 0.31283 0.42202 2.71 3.00 2.93 3.00 0.11835 0.25000 2.58 3.00 2.25 3.00 0.33962 0.17775 2.60 3.00 2.55 3.00 0.01222** 0.01700**

10-Year SRFs AMFs 2.74 3.00 0.26549 3.50 3.00 0.25000 3.20 3.00 2.18 3.00 0.25000 2.96 3.00 0.43710

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

Table 4 rst shows results of standard deviations (stand-alone or total risk) over the three-, ve-, and ten-year period ending on March 31, 2008. SRFs, as a whole, exhibit lower standard deviations than the category averages over three-year period (8.51 percent vs. 8.77 percent) and ve-year period (9.19 percent vs. 9.56 percent). Specically, only SRFs in the domestic stock funds categories over the past three and ve year periods and SRFs in the balanced funds categories over the past three years have lower standard deviations. During the last three years, SRFs exhibit lower standard deviations than category averages in six of the nine categories of domestic stock funds and in four of the ve categories of balanced

funds. These results do little to support the notion that SRFs have greater stand-alone risk resulting from their relative lack of diversication. Coupling these standard deviation results with the beta results presented below, SRFs are similar to conventional funds in terms of correlation with the market. The Morningstar risk ratings again display similar ndings. Table 4 documents that SRFs, as a whole, carry lower risk ratings than category averages over the three-year period (2.60 vs. 3.00) and ve-year period (2.55 vs. 3.00). More specically, only SRFs in the categories of domestic stock funds over the past three and ve years have lower risks. Unlike previous studies, Table 3 shows that SRFs have lower returns.

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Table 5 Sharpe Ratios and Morningstar Star Ratings Panel A: Sharpe Ratio 3-Year 5-Year SRFs AMFs SRFs AMFs 0.02 0.04320** 0.77 0.38836 0.31 0.14932 0.19 0.07553* 0.20 0.25985 0.15 0.69 0.19 -0.22 0.16 0.69 0.81 0.00742*** 1.25 1.28 0.39758 0.72 0.78 0.22354 0.49 0.26 0.03834** 0.73 0.76 0.23259 10-Year SRFs AMFs 0.10 0.18 0.02287** 0.16 0.20 0.35242 0.09 0.13 0.56 0.16961 0.18 0.21959 0.37 0.21

Fund Type Domestic stock funds T-test (probability) International stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability)

Fund Type Domestic stock funds T-test (probability) International stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability)

Panel B: Morningstar Star Rating 3-Year 5-Year SRFs AMFs SRFs AMFs 2.40 3.00 2.22 3.00 0.00549*** 0.00023*** 3.30 3.00 2.80 3.00 0.42202 0.41141 3.76 3.00 2.65 3.00 0.09442* 0.25000 3.98 3.00 3.39 3.00 0.04265** 0.21026 3.10 3.00 2.59 3.00 0.33877 0.01503**

10-Year SRFs AMFs 2.49 3.00 0.05370* 2.29 3.00 0.25000 2.20 3.00 3.93 3.00 0.17502 2.66 3.00 0.09892*

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

However, we also show in Table 4 that SRFs have lower risk. To determine whether the risk-return tradeo for SRFs has been proportional to the average funds risk-return tradeo, we now turn our attention to Sharpe ratio analysis. Table 5 rst shows results of Sharpe ratios over the three-, ve-, and tenyear period under study. SRFs in the categories of domestic stock funds exhibit lower Sharpe ratios than category averages over all time periods. However, SRFs in the categories of xed-income funds have higher Sharpe ratios than category averages in the past three and ve years. During the last three years, SRFs yield lower Sharpe ratios than category averages in seven of the nine categories

of domestic stock funds. Two exceptions that have higher Sharpe ratios are mid-cap value funds and small blend funds. SRFs possess higher Sharpe ratios than category averages in all three categories of xed-income funds in the past ve years. International stock funds consistently display Sharpe ratios similar to their conventional counterparts. These results are similar to those found the SRI literature in which international funds are analyzed (e.g., Bauer, et. al. 2005) and no signicant performance dierence is detected. The Morningstars star (risk-adjusted) ratings give slightly dierent results. This is not entirely surprising given that Morningstars risk-adjustment procedure is based on a complex

expected utility framework. Table 5 shows that SRFs, as a whole, exhibit lower risk-adjusted returns over the ve-year period (2.59 vs. 3.00) and ten-year period (2.66 vs. 3.00). Specically, SRFs in the categories of domestic stock funds have consistently lower risk-adjusted returns. However, SRFs in the categories of balanced funds and xed-income funds have higher risk-adjusted returns than category averages over the most recent three-year period. Similar to the Sharpe ratio analysis above, international funds have star ratings similar to their conventional counterparts. Table 6 shows results of betas (market risk) and alphas (marketrisk-adjusted excess returns) over the latest three-year period. The betas of domestic stock SRFs are signicantly lower (1.11 vs. 1.15) than category averages. Domestic stock SRFs also have signicantly lower alphas (-1.83 percent vs. -0.46 percent). During the last three years, SRFs show lower alphas than category averages in seven of the nine categories of domestic stock funds. These results dier from those in the literature possibly because the three-year period analyzed here is not a part, obviously, of prior research. However, Bauer, et al. (2006) suggest that over time ethical funds have become more similar to their conventional counterparts with respect to beta, market-cap, and investment style. They suggest this growing similarity is the reason why ethical funds more recently have delivered returns similar to those of conventional funds. Our results suggest these trends with respect to style tilts may not have continued given that competitive returns have not persisted. The alpha estimates for international stock SRFs are more than 1 percent higher than their category averages, but are not statistically signicant due to the relatively smaller number of funds. The overall results for international funds are more supportive of market eciency and/or SRI having lesser costs outside the United States.
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Socially responsible investing is an investment philosophy gaining popularity not only in the U.S.,but also in several other countries around the world. The question still debated is whether a socially conscious investment agenda sacrices return performance. We compare U.S. SRF and conventional fund operating characteristics as well as risk and performance measures over the last fteen years. This paper contributes two unique ndings to the literature. First, although SRFs have had a relative advantage in terms of lower expense ratios, lower annual turnover rates, lower tax cost ratios and lower risk, SRFs also exhibit lower returns, and two risk-adjusted return measures indicate SRFs have inferior reward-torisk performance. In particular, SRFs in the categories of domestic stock funds have not generated competitive returns relative to conventional funds in the same categories over the past ten to fteen years. These results contrast those found in the extant SRI literature which suggest socially responsible investing has little or no cost. Second, a ner partitioning by fund type reveals not all SRFs have similar inferior performance. SRFs in balanced fund and xed-income fund categories, especially during the past three years, have performed better than the category averages with lower risk, higher returns, and higher risk-adjusted returns. This suggests that there is not a xed or homogeneous cost associated with socially responsible investing.

Conclusion

Table 6 Three-Year Betas and Alphas (%) Morningstar Category Domestic stock funds T-test (probability) International stock funds T-test (probability) All stock funds T-test (probability) Beta SRFs 1.11 0.04936** 0.99 0.36420 1.09 0.09056* 1.15 0.96 1.12 AMFs SRFs -1.83 0.04200** 0.56 0.37312 -1.40 0.12957 Alpha AMFs -0.46 -0.66 -0.50

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

References

Asmundson, P. and S. Foerster. 2001. Socially Responsible Investing: Better for Your Soul or Your Bottom Line?. Canadian Investment Review 4(4, Winter):26-34. Aupperle, K, A. Carroll, and A. Hareld, 1985. An Empirical Examination of the Relationship between Corporate Social Responsibility and Protability. Academy of Management Journal 28:446-463. Bauer, R., K. Koedijk and R. Otten. 2005.

International Evidence on Ethical Mutual Fund Performance and Investment Style. Journal of Banking and Finance 29(7, July):1751-1767. Bauer, R., R. Otten and A. T. Rad. 2006. Ethical Investing in Australia: Is There a Financial Penalty?. Pacic-Basin Finance Journal 14(1, January):33-48. Bello, Z. 2005. Socially Responsible Investing and Portfolio Diversication. Journal of Financial Research 28(1, Spring):41-57. Bodie, Z., A. Kane and A. Marcus. 2007. Investments. New York: McGraw-Hill. Camejo, P. 2002. The SRI Advantage. Canada: New Society Publishers. Carhart, M. 1997. On Persistence in Mutual Fund Returns. Journal of Finance 52(1, March):57-82. Clow, R. 1999. Money that Grows on Trees. Institutional Investor 33:212-215. Corson, B. and T. Van Dyck. 1992. Socially Responsible Investing and Financial Return: Albatross or Scapegoat?. Journal of Investing 1(2, Fall):23-28. Diltz, J. 1995. The Private Cost of Socially Responsible Investing. Applied Financial Economics 5:69-77. Goldreyer, E., P. Ahmed and J. Diltz. 1999. The Performance of Socially Responsible Mutual Funds: Incorporating Sociopolitical Information in Portfolio Selection. Managerial Finance 25(1):23-36. Grossman, B., and W. Sharpe. 1986. Financial Implications of South Africa Divestment. Financial Analysts Journal 42:15-29. Guerard, J. 1997a. Is There a Cost to Being Socially Responsible in Investing?. Jour-

nal of Investing 6(2, Summer):11-18. Guerard, J. 1997b. Additional Evidence on the Cost of Being Socially Responsible in Investing. Journal of Investing 6(4, Winter):31-36. Hamilton, S., H. Jo and M. Statman. 1993. Doing Well While Doing Good? The Investment Performance of Socially Responsible Mutual Funds. Financial Analysts Journal 49(6, November-December):62-66. Harrington, J. 1992. Investing with Your Conscience: How to Achieve High Returns Using Socially Responsible Investing. New York: John Wiley. Kurtz, L. 1997. No Eect, or No Net Effect? Studies on Socially Responsible Investing. Journal of Investing 6(4, Winter):37-49. Kurtz, L. and D. DiBartolomeo. 1996. Socially Screened Portfolios: An Attribution analysis of Relative Performance. Journal of Investing 5(3):35-41. McGuire, J., A. Sundgren, and T. Schneeweis. 1988. Corporate Social Responsibility and Firm Financial Performance. Academy of Management Journal 31(4, December):854-872. Plantinga, A., B. Scholtens and N. Brunia. 2002. Exposure to Socially Responsible Investing of Mutual Funds in the Euronext Markets. Journal of Performance Measurement (Spring):40-48. Rudd, A. 1981. Social Responsibility and Portfolio Performance. California Management Review 23(4, Summer):55-61. Schroder, M. 2004. The Performance of Socially Responsible Investments: Investment Funds and Indices. Financial Markets and Portfolio Management 18(2,

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June):122-142. Sharpe, W. 1965. Risk-Aversion in the Stock Market: Some Empirical Evidence. Journal of Finance 20(3):416422. Statman, M. 2000. Socially Responsible Mutual Funds. Financial Analysts Journal 56(3, May/June):30-39. Ullmann, A. 1985. Data in Search of a Theory: A Critical Examination of the Relationships among Social Performance, Social Disclosure, and Economic Performance of U. S. Firms. Academy of Management Review 10(3, July):540-557.

Appendices
Table 2 Expense Ratio (%), Annual Turnover Rates (%) and Three-Year Tax Cost Ratios (%) Morningstar Category Domestic Stock Funds Large blend Large growth Large value Mid-cap blend Mid-cap growth Mid-cap value Small blend Small growth Small value International Stock Funds Foreign large blend World stock Balanced Funds Conservative allocation Moderate allocation Target-date 2000-2014 Target-date 2015-2029 Target-date 2030+ Fixed-Income Funds High yield bond Intermediate-term bond Short-term bond Averages Domestic stock funds T-test (probability) International stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability) Expense Ratio SRFs AMFs 1.31 1.54 1.66 1.72 1.94 2.45 1.52 1.93 2.09 1.76 1.42 1.35 1.68 0.89 0.96 1.03 1.79 1.11 0.63 1.57 1.67 1.71 1.65 1.91 1.81 1.78 1.95 2.03 1.80 2.00 2.00 1.61 1.16 1.21 1.23 1.46 1.24 1.17 Annual Turnover SRFs AMFs 53.09 39.80 32.46 113.67 67.73 99.00 95.40 92.29 46.00 70.30 7.00 7.00 46.50 22.00 18.00 24.00 26.00 111.00 101.00 72.00 98.00 58.00 108.00 113.00 80.00 94.00 114.00 83.00 71.00 58.00 56.00 68.00 48.00 28.00 26.00 112.00 190.00 98.00 Tax Cost Ratio SRFs AMFs 0.82 0.30 1.66 0.74 0.33 0.25 2.71 0.42 0.01 1.57 0.53 0.99 1.52 1.22 1.14 1.08 2.65 1.51 1.52 1.04 0.48 1.53 1.73 0.99 1.96 1.88 1.32 2.10 1.30 1.15 1.27 1.34 1.24 1.26 1.38 2.47 1.54 1.38

About the Authors

C. Edward Chang (PhD - University of Illinois at Urbana-Champaign) is a professor of finance in the College of Business Administration at Missouri State University, Springfield, MO. His current research interests are performance measurement of investment vehicles and financial education. His articles have been published in the Journal of Multinational Financial Management, Applied Financial Economics, Real Estate Review and Financial Practice and Education. H. Doug Witte (PhD - University
of Arizona) is an assistant professor of finance in the College of Business Administration at Missouri State University, Springfield, MO. His current research interests are in the areas of financial markets and international finance. His articles have been published in the Studies in Economics and Finance and Review of Business Research.

1.80 1.79 0.46155 1.59 1.90 0.22808 1.18 1.44 0.04336** 1.18 1.29 0.34808 1.51 1.63 0.05960*

71.05 91.11 0.02182** 38.65 64.50 0.24563 23.50 45.20 0.02696** 79.33 133.33 0.09967* 56.43 82.89 0.00046***

0.80 1.45 0.03299** 1.05 1.23 0.38074 1.19 1.27 0.17552 1.89 1.80 0.13602 1.10 1.43 0.02806**

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds. Tax Cost Ratio reflect three-year average (April 2005-March 2008)

Spring 2010 Vol. 25, No. 1

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Chang and Witte

Table 3, Panel A Average Annual Returns (%)
Morningstar Category Large blend Large growth Large value Mid-cap blend Mid-cap growth Mid-cap value Small blend Small growth Small value 3-Year
SRFs AMFs

Table 3, Panel B Morningstar Return Ratings

15-Year
SRFs AMFs

5-Year
SRFs AMFs

10-Year
SRFs AMFs

Morningstar Category Domestic Stock Funds

3-Year

5-Year

10-Year AMFs 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00

SRFs AMFs SRFs AMFs SRFs 2.55 2.13 2.62 1.67 2.13 3.00 3.20 2.14 2.00 2.10 4.50 3.00 2.50 3.75 4.50 5.00 3.67 3.44 4.50 2.38 3.30 3.75 3.87 3.07 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 2.67 3.44 4.00 2.24 2.75 2.68 3.37 0.21923 2.59 3.00 0.01423** 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.36 4.50 2.32 2.29 2.30 3.93 0.17502 2.56 2.00 3.50 3.00 2.36 3.00 3.00 3.00 3.00 2.30 1.57 3.00 2.45 2.37 2.64 2.00 1.73 2.00 2.60 2.14 3.00 3.00 3.00 3.00 13.62 14.58 14.63 13.03 2.88 2.94 2.00 3.33 2.58 1.00 2.00 1.80

Domestic Stock Funds 5.08 4.65 4.59 1.45 4.82 7.96 4.97 0.08 1.33 5.69 6.18 5.04 5.75 7.34 5.31 4.47 4.31 3.28 13.73 18.29 20.17 3.47 6.87 5.51 5.80 6.11 7.92 8.15 8.95 10.18 11.15 9.15 9.98 3.70 3.60 2.66 4.56 6.77 5.32 7.60 6.21 4.39 10.61 10.57 8.86 6.45 8.85 8.11 10.33 2.99 14.30 7.58

Large blend Large growth Large value Mid-cap blend Mid-cap growth Mid-cap value Small blend Small growth Small value International Stock Funds Foreign large blend World stock Balanced funds Conservative allocation Moderate allocation

11.54 12.08 2.42 10.79 13.62 4.14 13.07 14.58 3.77 13.26 14.63 4.81 9.23 13.03 0.67

International Stock Funds Foreign large blend 11.78 World stock Balanced funds Conservative allocation Moderate allocation Target-date 2000-2014 Target-date 2015-2029 Target-date 2030+ Fixed-Income Funds High yield bond Intermediate Term bond Short-term bond Averages Domestic Stock funds T-test (probability) International Stock funds T-test (probability) Balanced funds T-test (probability) T-test (probability) All funds T-test (probability) 3.88 5.26
10.90

3.00 3.00

15.67 10.52 18.73 17.22 4.16 4.84 5.83 7.37 8.39 4.49 5.58 4.88 5.70 6.26 6.06 8.51 6.28 9.29

3.00

3.85

4.45

6.99

7.84

Target-date 2000-2014 Target-date 2015-2029 Target-date 2030+ Fixed-income funds High yield bond Intermediate-term bond Short-term bond Averages

3.00 3.00 3.00 3.00 3.00 3.00 3.00

4.89 4.81 4.88

3.89 3.88 3.39

7.14 4.39 3.41

7.47 3.75 2.68 5.45 4.95 5.06 4.29 5.14 8.64 0.22011 7.02 0.10117 6.99 6.08 7.57 7.84 5.61 8.30 8.55 9.18 6.08 5.61

Domestic stock funds T-test (probability) International Stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability)

0.00289***

0.00015***

0.01885**

0.42202 0.08954* 0.05699* 0.37694

0.39758 0.25000

0.25000

12.97 3.76

0.04955** 13.73 12.13 0.36522 6.12 0.12798 3.72 5.77 0.01153** 5.66 0.41858 5.38

0.00211***

0.03189** 5.66 4.45 4.68 5.09

18.51 18.70 5.17 0.46540 7.29 4.98 7.79 4.63 0.16249 5.20 4.21 0.20721 10.25 11.37 0.00871*** 3.85

0.40376

0.05432*

Fixed-income funds 4.86

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

0.08012* 0.03908** 0.04363**

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

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Table 4, Panel A Standard Deviations
Morningstar Category Domestic Stock Funds Large blend Large growth Large value Mid-cap blend Mid-cap growth Mid-cap value Small blend Small growth Small value International Stock Funds Foreign large blend World stock Balanced funds Conservative allocation Moderate allocation Target-date 2000-2014 Target-date 2015-2029 Target-date 2030+ Fixed-income funds High yield bond Intermediate-term bond Short-term bond Averages Domestic stock funds T-test (probability) International Stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability) 11.32 11.75 11.72 11.71 5.61 0.38312 3.15 9.19 3.63 9.56 2.86 0.39758 15.27 0.41186 15.02 2.86 0.20625 0.05074* 12.26 11.64 5.56 18.14 0.43975 18.21 0.28114 11.26 9.72 16.28 18.41 0.09213* 12.03 11.41 0.31636 5.44 2.86 8.51 5.73 3.14 8.77 0.09596* 0.27653 0.08821* 0.07651* 3.78 2.66 2.15 4.72 2.94 1.75 3.82 3.48 2.14 5.22 3.73 1.95 3.67 2.04 3.66 2.06 3.82 6.37 3.68 5.39 7.94 3.84 6.33 3.71 6.29 8.48 4.25 6.97 4.33 6.79 11.26 9.72 11.43 11.76 11.37 11.81 15.39 21.03 15.81 16.75 12.62 11.06 12.05 11.46 9.02 9.17 9.28 9.04 9.35 9.78 9.71 9.76 14.44 17.08 14.17 15.28 22.73 25.95 17.39 18.08 14.78 18.61 13.98 18.11 22.96 15.61 18.26 24.97 10.38 11.44 10.07 11.38 12.65 13.37 9.59 10.48 12.20 13.41 16.40 14.98 12.43 12.34 10.54 11.45 10.48 12.21 13.36 13.62 9.69 17.11 11.32 15.87 13.44 14.13 3-Year 5-Year 10-Year AMFs SRFs AMFs SRFs AMFs SRFs Morningstar Category Domestic Stock Funds Large blend Large growth Large value Mid-cap blend Mid-cap growth Mid-cap value Small blend Small growth Small value International Stock Funds Foreign large blend World stock Balanced funds Conservative allocation Moderate allocation Target-date 2000-2014 Target-date 2015-2029 Target-date 2030+ Fixed-Income Funds High yield bond Intermediate-term bond Short-term bond Averages Domestic stock funds T-test (probability) International Stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability) 2.40 3.20 2.71 0.11835 2.58 2.60 3.00 3.00 0.33962 0.01222** 3.00 3.00 3.00 2.43 3.10 2.93 2.25 0.17775 2.55 3.00 0.01700** 3.00 3.00 3.00 3.00 2.74 3.50 3.20 3.18 2.96 0.43710 3.00 3.00 3.00 3.00 3.00 0.00636*** 0.03115** 0.26549 1.00 2.75 4.00 3.00 3.00 3.00 1.00 2.75 3.00 3.00 3.00 3.00 3.36 3.00 3.00 3.00 3.00 3.07 3.00 2.00 2.50 3.00 3.00 3.00 3.00 3.00 3.00 2.86 3.00 3.00 3.20 3.00 2.90 3.50 3.00 3.00 2.70 3.50 3.00 3.00 3.00 4.00 3.00 3.00 2.79 2.30 3.23 1.78 2.20 2.00 1.60 2.71 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 2.64 2.37 3.27 1.80 2.93 1.00 2.60 2.86 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 2.88 2.76 3.00 2.33 2.92 5.00 2.00 1.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00

Table 4, Panel B Morningstar Risk Ratings

3-Year 5-Year 10-Year AMFs SRFs AMFs SRFs AMFs SRFs

0.45397

0.31283

0.42202 0.25000

0.25000

0.25000

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

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Chang and Witte

Table 5, Panel A Sharpe Ratios
Morningstar Category Domestic Stock Funds Large blend Large growth Large value Mid-cap blend Mid-cap growth Mid-cap value Small blend Small growth Small value International Stock Funds Foreign large blend World stock Balanced Funds Conservative allocation Moderate allocation Target-date 2000-2014 Target-date 2015-2029 Target-date 2030+ Fixed-Income Funds High yield bond Intermediate-term bond Short-term bond Averages Domestic stock funds T-test (probability) International stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability) 0.02 0.77 0.31 0.19 0.20 0.15 0.69 0.19 -0.22 0.16 0.69 1.25 0.72 0.49 0.73 0.81 1.28 0.78 0.26 0.76 0.10 0.16 0.35242 0.09 0.56 0.16961 0.18 0.21959 0.21 0.13 0.37 0.18 0.20 0.04320** 0.38836 0.14932 0.07553* 0.25985 0.00742*** 0.39758 0.22354 0.03834** 0.23259 0.02287** 0.15 0.17 0.25 -0.03 -0.11 -0.51 0.99 0.35 0.12 0.83 0.19 -0.24 0.48 0.64 0.40 0.33 -0.03 0.09 0.09 0.41 0.57 0.53 0.22 0.15 0.25 0.26 0.67 0.76 0.68 0.88 0.09 0.13 0.67 0.86 0.80 0.58 1.27 1.23 1.37 1.18 0.07 0.25 0.19 0.21 0.12 0.07 0.07 0.10 0.40 0.11 0.19 0.21 0.14 0.28 0.16 0.09 0.74 0.58 0.84 0.65 0.60 0.99 0.76 0.36 0.81 0.64 0.90 0.91 0.78 0.99 0.82 0.66 0.08 0.05 -0.01 0.32 0.11 0.14 0.15 -0.07 0.07 0.04 0.13 0.28 0.20 0.32 0.24 0.16 3-Year 5-Year 10-Year AMFs SRFs AMFs SRFs AMFs SRFs Morningstar Category Domestic Stock Funds Large blend Large growth Large value Mid-cap blend Mid-cap growth Mid-cap value Small blend Small growth Small value International Stock Funds Foreign large blend World stock Balanced Funds Conservative allocation Moderate allocation Target-date 2000-2014 Target-date 2015-2029 Target-date 2030+ Fixed-Income Funds High yield bond Intermediate-term bond Short-term bond Averages Domestic stock funds T-test (probability) International Stock funds T-test (probability) Balanced funds T-test (probability) Fixed-income funds T-test (probability) All funds T-test (probability) 2.40 3.30 3.76 3.98 3.10 3.00 3.00 3.00 3.00 3.00 2.22 2.80 0.41141 2.65 3.39 2.59 3.00 3.00 3.00 0.25000 3.93 0.17502 2.66 3.00 0.09892* 3.00 0.21026 0.01503** 3.00 3.00 2.49 2.29 2.20 3.00 3.00 3.00 0.00549*** 0.00023*** 0.05370* 4.00 3.44 4.50 3.00 3.00 3.00 2.67 3.50 4.00 3.00 3.00 3.00 3.36 4.50 3.00 3.00 3.00 2.43 3.75 4.63 5.00 3.00 3.00 3.00 3.00 3.00 3.00 2.29 3.00 3.00 2.20 3.00 2.10 4.50 3.00 3.00 2.10 3.50 3.00 3.00 1.57 3.00 3.00 3.00 2.61 2.10 2.62 1.78 2.20 3.00 3.40 1.86 2.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 2.48 2.43 2.64 2.00 1.73 2.00 2.60 1.86 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 2.82 3.24 2.00 3.33 2.50 1.00 2.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00

Table 5, Panel B Morningstar Star Ratings

3-Year 5-Year 10-Year AMFs SRFs AMFs SRFs AMFs SRFs

-0.24 0.18

-0.28 0.08 -0.18 -0.01

0.42202 0.09442* 0.04265** 0.33877

0.25000

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

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Table 6 Three-Year Betas and Alphas (%)
Morningstar Category Domestic Stock Funds Large blend Large growth Large value Mid-cap blend Mid-cap growth Mid-cap value Small blend Small growth Small value International Stock Funds Foreign large blend World stock Averages Domestic stock funds T-test (probability) International stock funds T-test (probability) All stock funds T-test (probability) 1.11 0.04936** 0.99 0.36420 1.09 0.09056* 1.12 0.96 1.15 -1.83 0.04200** 0.56 0.37312 -1.40 0.12957 -0.50 -0.66 -0.46 1.00 0.97 1.03 0.89 -1.39 2.50 0.28 -1.60 0.99 1.10 0.98 0.96 1.15 0.96 1.21 1.43 1.20 1.00 1.16 0.95 1.11 1.29 1.03 1.28 1.44 1.13 -0.71 -1.18 -1.12 -4.06 -0.84 2.13 -0.88 -5.49 -4.35 -0.05 0.34 -0.57 0.01 1.39 -0.36 -1.21 -1.42 -2.29 3-Year SRFs AMFs SRFs 5-Year AMFs

Significance: *p<0.10, **p<0.05, ***p<0.01. Notes: SRFs=Socially Responsible Funds, AMFs=Average of All Mutual Funds.

Spring 2010 Vol. 25, No. 1

21

Conference Theme:

Global Supply Chain Management

Hosted by:

College of Business Administration University of Toledo

Midwest Decision Sciences Institute

2801 W. Bancroft St. Toledo, Ohio 43606 419-530-5644

ANNUaL CONFERENcE
APRIL 22 - 24, 2010 Toledo, Ohio
Midwest Decision Sciences Institute is a multidisciplinary international association dedicated to advancing knowledge and improving instruction in all business and related disciplines. To pursue this mission, the MWDSI facilitates the development and dissemination of knowledge in the diverse disciplines of the decision sciences through publication, conferences, and other services. As a professional society, Midwest Decision Sciences Institute rst began in 1970. A signicant participant in the development of MWDSI was Stan Hardy, professor at Ohio State University. MWDSI holds a professional meeting annually in order to promote the attainment of its objectives. In support of its parent organization, MWDSI strives to be the premier professional organization of choice for business scholars.

Location:

Crowne Plaza Hotel - Toledo

444 N. Summit St. Toledo, OH 43604

www.crowneplazatoledo.com

Members: $155 Non-members: $180 Students: $30

2010 Program Highlights:

April 22, 2010

Computer rendering of Savage Complex, future home of the University of Toledo College of Business

Kuka Toledo plant tour of production operations - 9:30 am

April 23, 2010

Editors Panel - 1 pm Toledo Art Museum - after reception

Bowling Green State University, Western Kentucky University, Dominican University, John Carroll University and Sadat Academy for Management Sciences.

Conference Sponsors:

WWW.MWDSI.ORG

22

Spring 2010 Vol. 25, No. 1