Benson, Brailsford, and Humphrey (2005)

Benson, Karen L., Timothy J. Brailsford, Jacquelyn E. Humphrey. "Do Socially Responsible Fund Managers Really Invest Differently?" Working Paper, University of Queensland Business School, May 2005.

This interesting and well-done study examines differences between socially screened and conventional mutual funds (all open-ended funds in the U.S.) using two different analytical approaches.

First, the authors compare funds using a variety of characteristics, including nominal returns (Morningstar data, 1994-2003), Sharpe ratios, industry exposure, and fees. This analysis replicates earlier work showing that "the performance of SRI funds is not distinguishable from conventional funds," but that there are differences in portfolio composition (industry weightings).

Second, the authors conduct a more formal returns-based regression analysis using 12 Morningstar industries as explanatory variables. This analysis shows that "the estimated industry betas...are significantly different for the telecommunications [Z=3.97, p<0.05], healthcare [Z=2.01, p<0.05], and utilities [Z=2.85, p<0.05] industries... Despite exhibiting similar performance, the returns of SRI funds are generated through different industry exposures when compared to conventional funds, which is consistent with SRI managers holding different positions."

Building further on the regression analysis, the study finds that SRI managers have somewhat lower alphas (after accounting for industry effects) than their unconstrained counterparts.

Link (published version):  https://link.springer.com/article/10.1007/s10551-006-0003-8