The difference in risk adjusted performance between socially responsible and conventional equity mutual funds - Evidence from Sweden

Abstract

This thesis aims to study the difference in risk-adjusted performance between socially responsible (SR) and conventional equity mutual funds from a Swedish perspective. The study uses mutual fund data from the time-period January 2010 to January 2020. The performance is measured by using the Single-Index model, Fama-French three factor model, Carhart’s four factor model, Sharpe’s ratio and Treynor’s ratio.

Mutual fund managers that takes socially responsible criteria into consideration limits their investment possibilities. This should, theoretically, reduce the performance of mutual funds. This raises the question whether there exists a difference in performance between SR and conventional mutual funds, which is the fundamental research question of this paper.

The differences in performance is not only studied based on the SR criteria. The potential effects from the mutual funds cap size and age is also included in this study. Furthermore, it includes an analysis on the differences between mutual funds on an individual level. The result suggests that in the ten-year period January 2010 to January 2020, SR mutual funds underperform compared to the conventional mutual funds. However, after February 2015, SR mutual funds overperform in relation to the conventional.

The mutual funds cap size seems to have a minimal effect on the differences in performance, while age seems to have a small effect. More specifically, the result suggest that young SR mutual funds might underperform less than old SR mutual funds. On an individual level, a larger proportion of the SR mutual funds underperform the market compared to the conventional.