Socially Responsible [Investing]

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David Althaus
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Socially Responsible [Investing]

Post by David Althaus » Tue Apr 09, 2019 9:10 am

ACADEMIC EXERCIXE ONLY: Believe socially responsible (some might say self-congratulatory virtue signaling) funds have a history of underpeformance each and every year. Wonder why some investment company hasn't introduced a factor fund that eliminates companies deemed by (someone or group of someones) to be socially responsible?

All the best

Sconie
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Re: Socially Responsible

Post by Sconie » Tue Apr 09, 2019 9:27 am

Interesting thought, however, I suspect they don't want the "bad PR" from the social justice and environmental types......
I know that you think you understand what you thought I said, but I'm not sure you realize that what I said is necessarily what I meant......

alex_686
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Re: Socially Responsible

Post by alex_686 » Tue Apr 09, 2019 9:32 am

For 2 reasons, I suspect.

First, CSR is not a stable factor. What it is changes over time. There is a disconnect between stated policies and actual deeds. etc.

Second, there are better factors. If I recall correctly, the small value factor has a high explanatory power for social responsible funds. I get it makes intuitive sense, but the if the numbers are not there to back the thesis... Better to load on large growth funds.

BJJ_GUY
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Re: Socially Responsible

Post by BJJ_GUY » Tue Apr 09, 2019 9:34 am

There should be some economic logic that explains the thesis (or the data-mining). I'm not saying this is a rule or anything, but it's going to be hard to achieve buy in from investors when data isn't supported in a cogent and intuitive way... Not to mention (and repeat other comments) the trouble with an anti-SRI type mandate.

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RickBoglehead
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Re: Socially Responsible

Post by RickBoglehead » Tue Apr 09, 2019 9:34 am

Sconie wrote:
Tue Apr 09, 2019 9:27 am
Interesting thought, however, I suspect they don't want the "bad PR" from the social justice and environmental types......
This overrides any other reason.

"This fund is the anti-socially responsible fund. We've eliminated those low-performing, socially-responsible companies from it to maximize the returns."

Yeah, that would work...
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Re: Socially Responsible

Post by alex_686 » Tue Apr 09, 2019 9:36 am

RickBoglehead wrote:
Tue Apr 09, 2019 9:34 am
This overrides any other reason.

"This fund is the anti-socially responsible fund. We've eliminated those low-performing, socially-responsible companies from it to maximize the returns."

Yeah, that would work...
There are some "Sin" funds out there - but honestly the crowd you are pitching too prefers direct holdings of stocks, not funds. If you believe in guns and tobacco, odds are you are not in favor of the Wall Street crowd.

CurlyDave
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Re: Socially Responsible

Post by CurlyDave » Tue Apr 09, 2019 9:38 am

This is an interesting observation and question.

As an individual, I don't have the resources to start a fund, but is there any strategy I could follow which has the same effect?

I have never really looked into shorting stocks, but maybe shorting a socially responsible ETF while going long SPY? Somehow, I have this nagging feeling that this is going to involve borrowing stock or money and the carrying cost is going to eat me alive...

barnaclebob
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Re: Socially Responsible

Post by barnaclebob » Tue Apr 09, 2019 9:45 am

RickBoglehead wrote:
Tue Apr 09, 2019 9:34 am
Sconie wrote:
Tue Apr 09, 2019 9:27 am
Interesting thought, however, I suspect they don't want the "bad PR" from the social justice and environmental types......
This overrides any other reason.

"This fund is the anti-socially responsible fund. We've eliminated those low-performing, socially-responsible companies from it to maximize the returns."

Yeah, that would work...
If it did work it would exist. There is a fund called VICEX which invests in all sorts of morally questionable companies. Casinos, defense companies, tobacco companies, Alcohol etc.

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dm200
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Re: Socially Responsible

Post by dm200 » Tue Apr 09, 2019 9:46 am

While I would very much like to invest in "socially responsible" companies, etc., I have concluded that my definition of "socially responsible" often does not match that of others.

In addition, many companies have many divisions and product lines - some "socially responsible" and others not.

Drug companies, for example, may develop and market drugs that save lives, but also may produce (legally) many types of drugs that, on balance, are harmful.

Is nuclear energy socially responsible? Possibly "dangerous", but no carbon footprint.

and the list goes on ...

BJJ_GUY
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Re: Socially Responsible

Post by BJJ_GUY » Tue Apr 09, 2019 9:51 am

CurlyDave wrote:
Tue Apr 09, 2019 9:38 am
This is an interesting observation and question.

As an individual, I don't have the resources to start a fund, but is there any strategy I could follow which has the same effect?

I have never really looked into shorting stocks, but maybe shorting a socially responsible ETF while going long SPY? Somehow, I have this nagging feeling that this is going to involve borrowing stock or money and the carrying cost is going to eat me alive...
Cost of borrow (expense to short) is not super efficient for retail investors (not that it's gotten better for institutional groups either). If/when t-bills have a higher yield, shorting becomes less cost-prohibitive - assuming an efficient process, which is likely absent all of our tool boxes.

Even in a no cost world, what kind of style/factor bets are being introduced from basis risk between a the SRI ETF vs SPY?

aristotelian
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Re: Socially Responsible

Post by aristotelian » Tue Apr 09, 2019 10:43 am

You could buy an Energy sector ETF. They have done terribly recently (and SRI has over performed) due to collapse of oil prices. Personal I do not see any intrinsic reason why SRI should have lower expected return. The major issue from a Modern Portfolio Theory perspective is that they are reducing diversification.

acegolfer
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Re: Socially Responsible

Post by acegolfer » Tue Apr 09, 2019 11:28 am

David Althaus wrote:
Tue Apr 09, 2019 9:10 am
ACADEMIC EXERCIXE ONLY: Believe socially responsible (some might say self-congratulatory virtue signaling) funds have a history of underpeformance each and every year. Wonder why some investment company hasn't introduced a factor fund that eliminates companies deemed by (someone or group of someones) to be socially responsible?

All the best
If you are asking an academic question, here's why. When ppl argue SRI "underperforming", they compare SRI against MKT. Academically, this is not an enough justification to introduce a new factor. Another poster implied the 3-factor model can explain this underperfomance.

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vineviz
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Re: Socially Responsible

Post by vineviz » Tue Apr 09, 2019 11:34 am

David Althaus wrote:
Tue Apr 09, 2019 9:10 am
Believe socially responsible (some might say self-congratulatory virtue signaling) funds have a history of underpeformance each and every year.
Question your own premise: what evidence do you have for believing that "socially responsible... funds have a history of underpeformance each and every year"?

Do you really think that if this were true that someone wouldn't be exploiting it?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

DonIce
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Re: Socially Responsible

Post by DonIce » Tue Apr 09, 2019 11:38 am

CurlyDave wrote:
Tue Apr 09, 2019 9:38 am
This is an interesting observation and question.

As an individual, I don't have the resources to start a fund, but is there any strategy I could follow which has the same effect?

I have never really looked into shorting stocks, but maybe shorting a socially responsible ETF while going long SPY? Somehow, I have this nagging feeling that this is going to involve borrowing stock or money and the carrying cost is going to eat me alive...
Depending on the broker, if there's a big liquid SR ETF out there, you might be able to short it without paying any borrow fees. I wouldn't bother though. Even if the under-performance of SR continues in the future, it's too small of an under-performance to be worth trying to capitalize on with a long/short strategy.

larryswedroe
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Re: Socially Responsible

Post by larryswedroe » Tue Apr 09, 2019 12:12 pm

FYI, DFA has socially responsible funds that are factored based, use weighting schemes to UNDERWEIGHT companies with low ESG scores, not screen them out
Would imagine they are available in 401k plans and 529 plans without advisory fees, but don't know that
Larry

cheezit
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Re: Socially Responsible

Post by cheezit » Tue Apr 09, 2019 12:43 pm

VICEX has slightly overperformed the S&P 500 over it's entire history, despite having a massive ~1.45% ER hurdle to clear compared to a typical cheap index fund. That being said, without looking at factor regressions for the fund who knows whether this is just small caps having done well over the period or whatever.

e: I looked at the factor regressions of VICEX vs SPY over VICEX's entire life and nothing jumped out at me. Maybe small tilts to quality and low-volatility? Also the size loading was about zero compared to SPY's -0.16, but that's a pretty mild difference in average size. The R^2 coefficient for the regression was terrible at about 0.7 (though alpha was about zero), suggesting that the factors I clicked in PortfolioVisualizer's regression tool did a poor job of modeling VICEX's performance over the period.

edit 2: selecting all of the AQR factors (but only selecting one of their two versions of Value) and keeping the more robust multivariable regression method brought the annualized value of alpha down to nearly match the expense ratio (-1.27% vs -1.49%), but R^2 remained at a pitiful 0.74.

ReadyOrNot
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Re: Socially Responsible

Post by ReadyOrNot » Wed Apr 10, 2019 3:36 am

Why should socially responsible companies be expected to do worse? I doubt there could be much data showing that. Even if some funds do worse, it is hard to say if it was because of such a vaguely defined factor. I think in general, ethical companies are better-managed than unethical ones, and may do better than unethical companies. I got this from some business ethics seminars but don't have the references.

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celia
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Re: Socially Responsible

Post by celia » Wed Apr 10, 2019 4:33 am

ReadyOrNot wrote:
Wed Apr 10, 2019 3:36 am
Why should socially responsible companies be expected to do worse?
I would expect them to do worse because they are using some of their product/ money/ manpower/ time to do something extra that their competitors (who don't claim to be socially responsible) don't do. For example, if they recycle everything they can, that takes extra space, manpower, possibly transportation to do the recycling but the product they sell would probably sell for the same price as their competitor. In other words, they are spending some of their resources on something that will have no financial benefit for them.

Although they may improve the environment, help a designated group of people, or improve world health, these results are not measured on a balance sheet like their profits/losses are.

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Re: Socially Responsible

Post by ThrustVectoring » Wed Apr 10, 2019 5:11 am

ReadyOrNot wrote:
Wed Apr 10, 2019 3:36 am
Why should socially responsible companies be expected to do worse? I doubt there could be much data showing that. Even if some funds do worse, it is hard to say if it was because of such a vaguely defined factor. I think in general, ethical companies are better-managed than unethical ones, and may do better than unethical companies. I got this from some business ethics seminars but don't have the references.
The primary way socially responsible funds can be effective is by making capital more expensive for non-responsible companies and less expensive for responsible ones. Another way of saying "more expensive capital" is "capital with a higher rate of return". The fund's under-performance and ability to change how capital is allocated are two sides of the same coin. If it isn't underperforming, it's not shifting capital away from the free-market default.

(Socially responsible funds can also be activist shareholders, but that's a side-issue IMHO)
Current portfolio: 60% VTI / 40% VXUS

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vineviz
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Re: Socially Responsible

Post by vineviz » Wed Apr 10, 2019 6:10 am

celia wrote:
Wed Apr 10, 2019 4:33 am
ReadyOrNot wrote:
Wed Apr 10, 2019 3:36 am
Why should socially responsible companies be expected to do worse?
I would expect them to do worse because they are using some of their product/ money/ manpower/ time to do something extra that their competitors (who don't claim to be socially responsible) don't do. For example, if they recycle everything they can, that takes extra space, manpower, possibly transportation to do the recycling but the product they sell would probably sell for the same price as their competitor. In other words, they are spending some of their resources on something that will have no financial benefit for them.

Although they may improve the environment, help a designated group of people, or improve world health, these results are not measured on a balance sheet like their profits/losses are.
That’s a hypothesis that should be easily tested.

Does it hold up to scrutiny?

Look for evidence: you’ll be surprised by it, I suspect.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Ferdinand2014
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Re: Socially Responsible

Post by Ferdinand2014 » Wed Apr 10, 2019 6:32 am

I don’t believe you can define what is socially responsible in a generally accepted way that would then allow you to define the contra in this politically correct charged world. It would bring unwanted attention to Wall Street firms. For example, I could argue that cheap oil has lifted the standards of living for billions of people and saved millions of lives by providing cheap energy for heating, cheap transportation for food, social connections, emergency care, fertilizers, diesel for the farmers tractors, plastics that go into everything from toothbrushes to sterile surgical kits, medicines of every variety, you get the idea. So would oil drilling companies and Exxon Mobil be considered socially responsible? I think so. Very much so. It’s obvious that others would disagree.

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Re: Socially Responsible

Post by z3r0c00l » Wed Apr 10, 2019 6:40 am

Well lots of the socially responsible funds, including the stinker offered by Vanguard and briefly found in my company 401K, just load up on whatever the big thing is in the SP 500 anyway. In other words, Facebook, Apple, etc. Now Apple looks green and new economy because their users are young and hip, and products shiny. But don't forget what is at the foundation of such a company; extraction, pollution, and exploitation of cheap labor overseas.

Absolutely, the right investment in the past was to go with a tobacco company like Altria. That may eventually change, and Altria is down significantly the last few years, but that one stock would have made you rich off the suffering of others. Vice is profitable for sure.

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Re: Socially Responsible

Post by Valuethinker » Wed Apr 10, 2019 6:59 am

David Althaus wrote:
Tue Apr 09, 2019 9:10 am
ACADEMIC EXERCIXE ONLY: Believe socially responsible (some might say self-congratulatory virtue signaling) funds have a history of underpeformance each and every year. Wonder why some investment company hasn't introduced a factor fund that eliminates companies deemed by (someone or group of someones) to be socially responsible?

All the best
there is a fund, ticker is VICE

It's expensive (1.5% ER from memory). [EDIT: I see it has outperformed, marginally]

In effect these types of funds tend to be Value funds. It's really a bet on value.

Stocks which habitually trade on a PE discount (and yield premium) include: Tobacco (a huge moneyspinner for investors via dividends and buybacks); Drinks (look at Diageo over the last 25 years); gambling; defence companies (BAE, Lockheed-Martin etc); coal miners (Glencore Resources) etc. In the US you might get small arms manufacturers (Ruger is quoted? Glock?).

Big integrated Oil & Gas firms trade at sub market multiples too. Think BP. Exxon. Gazprom is incredibly cheap (I think around 4x PE but would have to check).
Last edited by Valuethinker on Wed Apr 10, 2019 7:09 am, edited 1 time in total.

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Re: Socially Responsible

Post by Valuethinker » Wed Apr 10, 2019 7:07 am

celia wrote:
Wed Apr 10, 2019 4:33 am
ReadyOrNot wrote:
Wed Apr 10, 2019 3:36 am
Why should socially responsible companies be expected to do worse?
I would expect them to do worse because they are using some of their product/ money/ manpower/ time to do something extra that their competitors (who don't claim to be socially responsible) don't do. For example, if they recycle everything they can, that takes extra space, manpower, possibly transportation to do the recycling but the product they sell would probably sell for the same price as their competitor. In other words, they are spending some of their resources on something that will have no financial benefit for them.

Although they may improve the environment, help a designated group of people, or improve world health, these results are not measured on a balance sheet like their profits/losses are.
Recycling has significant economic benefits. I know of large infrastructure company where waste disposal runs into the hundreds of millions of cost. US landfill charges may be lower, this is in Europe.

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vineviz
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Re: Socially Responsible

Post by vineviz » Wed Apr 10, 2019 7:40 am

vineviz wrote:
Wed Apr 10, 2019 6:10 am
celia wrote:
Wed Apr 10, 2019 4:33 am
ReadyOrNot wrote:
Wed Apr 10, 2019 3:36 am
Why should socially responsible companies be expected to do worse?
I would expect them to do worse because they are using some of their product/ money/ manpower/ time to do something extra that their competitors (who don't claim to be socially responsible) don't do. For example, if they recycle everything they can, that takes extra space, manpower, possibly transportation to do the recycling but the product they sell would probably sell for the same price as their competitor. In other words, they are spending some of their resources on something that will have no financial benefit for them.

Although they may improve the environment, help a designated group of people, or improve world health, these results are not measured on a balance sheet like their profits/losses are.
That’s a hypothesis that should be easily tested.

Does it hold up to scrutiny?

Look for evidence: you’ll be surprised by it, I suspect.
Hint:
From an investment performance perspective, 2018 was a solid year for sustainable funds. On average, they outperformed their peers, with 63% of sustainable funds finishing in the top half of their respective Morningstar Categories. Another strong year meant that 58% of the subset ranked in their category’s top half over the trailing five years, which included periods of equity market strength, such as 2017, and moderation, such as 2015 when the S&P 500 barely managed a positive return.
https://www.morningstar.com/blog/2019/0 ... scape.html
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Socially Responsible

Post by Strayshot » Wed Apr 10, 2019 7:46 am

“Socially responsible” is as subjective as it wants to be. Nothing I have seen in socially responsible investing looks like anything different than active management stock picking. Active management has been demonstrated to underperform index (or broad market) investing with a high probability over time. Therefore, I think socially responsible investing is just a new marketing term for active management that makes you feel better about yourself when you underperform and pay higher fees than necessary.

Parnassus has some funds that have done well with ESG over longer time horizons, but they too have eventually underperformed.

cheezit
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Re: Socially Responsible

Post by cheezit » Wed Apr 10, 2019 8:56 am

Valuethinker wrote:
Wed Apr 10, 2019 6:59 am
David Althaus wrote:
Tue Apr 09, 2019 9:10 am
ACADEMIC EXERCIXE ONLY: Believe socially responsible (some might say self-congratulatory virtue signaling) funds have a history of underpeformance each and every year. Wonder why some investment company hasn't introduced a factor fund that eliminates companies deemed by (someone or group of someones) to be socially responsible?

All the best
In effect these types of funds tend to be Value funds. [VICEX is] really a bet on value.
Factor regressions seem to indicate otherwise (period is VICEX's full life, September 2002-present, AQR factors used for the regression):

Code: Select all

Ticker		Beta	Size	Value	Mom.	Qual.	LowVol	Annual Alpha	R^2
SPY		1.00	-0.15	0.01	-0.01	0.07	-0.01	-0.28%		99.3%
VICEX		0.90	-0.01	0.00	0.02	0.05	0.26	-1.27%		75.4%
To me, this looks more like a low-volatility play if it is an intentional play on anything factor-related, *but* who knows what might be throwing that off? I suspect that the poor curve fit can be partially attributed to shocks that affect specific industries, eg. the massive temporary increases in sales volume for civilian firearms manufacturers in 2008/2009 and 2012/2013.

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Re: Socially Responsible

Post by columbia » Wed Apr 10, 2019 9:14 am

Vanguard offers a SRI fund, which has lagged the market over the life of the fund. (Not factor based, I suppose.)

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Re: Socially Responsible

Post by columbia » Wed Apr 10, 2019 9:33 am

columbia wrote:
Wed Apr 10, 2019 9:14 am
Vanguard offers a SRI fund, which has lagged the market over the life of the fund. (Not factor based, I suppose.)
Also: this uses a FTSE index. I’ve never been able to track down a list of the companies, which the index screens out (from large and mid cap target zones).

:?:

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Spinola
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Re: Socially Responsible

Post by Spinola » Wed Apr 10, 2019 9:53 am

Believe socially responsible (some might say self-congratulatory virtue signaling) funds have a history of underpeformance each and every year.
I wouldn't call this underperformance.. Many an actively managed fund has done worse, BEFORE fees..

https://www.zacks.com/funds/mutual-fund ... erformance

vs non-social choice Russel 3000 index fund.. virtually similar returns.

https://www.zacks.com/funds/mutual-fund ... erformance

that said, who or what qualifies as socially responsible is another debate.

Many of these ideas and funds came about in the 18th century, in the era of of slavery, and in the 20th century Apartheid era. Consumers should be able to vote with their wallets. If I don't support certain companies, I have a right to divest from them. It is possible to profit from your investments without promoting the exploitation of your fellow human beings or destroying the planet in the process. I would even predict that renewable energies will be the future and investing in them now can have huge returns. There, now that is actionable.

Many a horse buggy manufacturer may have nay-said the automobile back in the day. How are those buggy whip manufacturer stocks doing now? :mrgreen:
Last edited by Spinola on Wed Apr 10, 2019 11:35 am, edited 1 time in total.

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Ketawa
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Re: Socially Responsible

Post by Ketawa » Wed Apr 10, 2019 10:30 am

All other things being equal, socially responsible funds should have lower expected returns than the market as a whole by raising the cost of capital for "sinful" companies. If they didn't, they wouldn't actually be achieving their goals. Here is an Asness blog post discussing it: Virtue is its Own Reward: Or, One Man’s Ceiling is Another Man’s Floor
vineviz wrote:
Wed Apr 10, 2019 7:40 am
vineviz wrote:
Wed Apr 10, 2019 6:10 am
That’s a hypothesis that should be easily tested.

Does it hold up to scrutiny?

Look for evidence: you’ll be surprised by it, I suspect.
Hint:
From an investment performance perspective, 2018 was a solid year for sustainable funds. On average, they outperformed their peers, with 63% of sustainable funds finishing in the top half of their respective Morningstar Categories. Another strong year meant that 58% of the subset ranked in their category’s top half over the trailing five years, which included periods of equity market strength, such as 2017, and moderation, such as 2015 when the S&P 500 barely managed a positive return.
https://www.morningstar.com/blog/2019/0 ... scape.html
This isn't very convincing, and certainly not enough evidence to disprove a hypothesis that expected returns should be lower. The funds are being compared to all funds in category, which I think means all equity, all fixed income, etc, and would include active funds with high fees.

One year results are basically meaningless. 22 of 26 funds in the Alternative/Allocation fund category outperformed. Those probably aren't being considered seriously by anyone here. It was 61% for equity funds and 49% for fixed income funds. The blog post only has one statement about five year results and no further breakdown.

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vineviz
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Re: Socially Responsible

Post by vineviz » Wed Apr 10, 2019 10:54 am

Ketawa wrote:
Wed Apr 10, 2019 10:30 am
All other things being equal, socially responsible funds should have lower expected returns than the market as a whole by raising the cost of capital for "sinful" companies.
Again, this is stated as a hypothesis that is completely testable and - in fact - has been tested.

So let's see some evidence that ESG funds actually DO have lower returns than equivalent non-ESG (or anti-ESG) funds?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

BJJ_GUY
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Re: Socially Responsible

Post by BJJ_GUY » Wed Apr 10, 2019 11:19 am

vineviz wrote:
Wed Apr 10, 2019 10:54 am
Ketawa wrote:
Wed Apr 10, 2019 10:30 am
All other things being equal, socially responsible funds should have lower expected returns than the market as a whole by raising the cost of capital for "sinful" companies.
Again, this is stated as a hypothesis that is completely testable and - in fact - has been tested.

So let's see some evidence that ESG funds actually DO have lower returns than equivalent non-ESG (or anti-ESG) funds?
I actually think it's a stronger statement a priori (as a thesis, which cannot be disproven), whereas the show me the test is going to be very hard with limited data and a bunch of bad peer groups created for the use of 'average' returns etc.

Why is this easy to grasp intuitively, at least in my mind? Thought Experiment...
Conditions:
- Assume a market is made up of A, B, and C and two investors 1 and 2
- investor 1 has zero restraints whereas investor 2 has decided C is uninvestible

Scenarios:
- If A and B are way better performers the C, investor 1 and 2 have the same ability to generate the highest potential return
- In any scenario where C outperforms A and B investor 1 CAN (not will) outperform the constrained investor even if the constrained investor generates the absolute maximum their respective universe can offer

(These are the facts, not a forecast, so no need to mention the fact that someone has to actually be able ti skillfully implement this stuff.)

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Re: Socially Responsible

Post by cheezit » Wed Apr 10, 2019 11:23 am

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Factor regression shows they are alike in every regard other than a small difference in LowVol/BaB loading, and of course VICEX's massively higher ER dragging its performance down.

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dm200
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Re: Socially Responsible

Post by dm200 » Wed Apr 10, 2019 11:30 am

Solar power is often considered "socially responsible" - and so do I.

Locally, I know a church that has entered into a long term arrangement(financial and otherwise) to install solar roof panels on three church buildings at the one site. A parishioner is funding the entire installation and getting some kind of large tax break. The solar panels will generate equivalent electricity for most of the church's electrical needs. After a certain period of years, the "ownership" of the solar system/panels reverts to the church.

Everyone involved believes they are a "winner".

The Church, which has an emphasis on use of resources, climate change, conservation, and related can claim all sorts of these benefits.

The Church, financially, can claim significant financial benefits from this project.

The members of the church, overwhelmingly, will be pleased with the project for non-financial reasons.

The parishioner/investor will, apparently, financially benefit long term.

This church is part of a denomination where all such projects and financial are strictly controlled/regulated/monitored by a hierarchical entity. Their construction, financial and legal review/oversight provides a great deal (in my opinion) of lowering of risks of all sorts and that it is a good deal. This oversight will continue. The hierarchical entity is very interested in, perhaps, doing this at other churches in its jurisdiction.

Perhaps "Socially Responsible" investing might focus on this kind of project/outreach.

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dm200
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Re: Socially Responsible

Post by dm200 » Wed Apr 10, 2019 11:36 am

Looking back over the decades, with 20/20 hindsight, it appears that stockholder initiatives against the South African Apartheid system/government had some degree of effectiveness. Back then, my MegaCorp employer had very significant business in South Africa. This MegaCorp employer fought vigorously against the stockholder initiatives to cease doing business there. The MegaCorp claimed that it did not engage in employment discrimination in its South African operations and that its efforts there were "better" at making fairness changes than withdrawing from the country.

BJJ_GUY
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Re: Socially Responsible

Post by BJJ_GUY » Wed Apr 10, 2019 11:42 am

dm200 wrote:
Wed Apr 10, 2019 11:30 am
Solar power is often considered "socially responsible" - and so do I.

Locally, I know a church that has entered into a long term arrangement(financial and otherwise) to install solar roof panels on three church buildings at the one site. A parishioner is funding the entire installation and getting some kind of large tax break. The solar panels will generate equivalent electricity for most of the church's electrical needs. After a certain period of years, the "ownership" of the solar system/panels reverts to the church.

Everyone involved believes they are a "winner".

The Church, which has an emphasis on use of resources, climate change, conservation, and related can claim all sorts of these benefits.

The Church, financially, can claim significant financial benefits from this project.

The members of the church, overwhelmingly, will be pleased with the project for non-financial reasons.

The parishioner/investor will, apparently, financially benefit long term.

This church is part of a denomination where all such projects and financial are strictly controlled/regulated/monitored by a hierarchical entity. Their construction, financial and legal review/oversight provides a great deal (in my opinion) of lowering of risks of all sorts and that it is a good deal. This oversight will continue. The hierarchical entity is very interested in, perhaps, doing this at other churches in its jurisdiction.

Perhaps "Socially Responsible" investing might focus on this kind of project/outreach.
Did the taxpayers who subsidized this win too?

Not saying I agree or disagree with these programs, but I'd point out that the counterargument isn't that solar is bad, but rather, the government doesn't always create an environment for best capital allocation and progress. Many solar - and related - companies moved hard when the biggest tax-breaks were being offered to the consumer, which created artificial demand from players who were perhaps not best suited - at least at that time - to provide the service. Companies in the sector paid for this, which may actually result in a slower evolution toward solar more broadly.

BJJ_GUY
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Re: Socially Responsible

Post by BJJ_GUY » Wed Apr 10, 2019 11:45 am

dm200 wrote:
Wed Apr 10, 2019 11:36 am
Looking back over the decades, with 20/20 hindsight, it appears that stockholder initiatives against the South African Apartheid system/government had some degree of effectiveness. Back then, my MegaCorp employer had very significant business in South Africa. This MegaCorp employer fought vigorously against the stockholder initiatives to cease doing business there. The MegaCorp claimed that it did not engage in employment discrimination in its South African operations and that its efforts there were "better" at making fairness changes than withdrawing from the country.
Similar argument is made by institutional investors who refuse to divest from stock holdings in wide ranging "unacceptable" companies, for whatever reason. It actually does make sense as long as we take the investor at face value to be telling the truth. More good can come from shareholder votes than from divesting and eliminating the ability to influence change.

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dm200
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Re: Socially Responsible

Post by dm200 » Wed Apr 10, 2019 11:45 am

Did the taxpayers who subsidized this win too?
Good question. I suppose taxpayers who support solar power believe they win (environmentally), while those who oppose such subsidies would believe this is a net loss.

Not much different than many other types of government expenditures and/or tax breaks.

Jags4186
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Re: Socially Responsible

Post by Jags4186 » Wed Apr 10, 2019 11:50 am

I like socially responsible but it underperforms. Personally responsibility trumps social responsibility.

BJJ_GUY
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Re: Socially Responsible

Post by BJJ_GUY » Wed Apr 10, 2019 11:52 am

dm200 wrote:
Wed Apr 10, 2019 11:45 am
Did the taxpayers who subsidized this win too?
Good question. I suppose taxpayers who support solar power believe they win (environmentally), while those who oppose such subsidies would believe this is a net loss.

Not much different than many other types of government expenditures and/or tax breaks.
Not trying to argue or be a jerk, honest question. Did you read the second part of the response? If not, below is a brief on how one might counter:

Let's assume no one hates solar, and that we all agree it's a noble and presumably great way forward. The diverging view is simply how do we get from A to B? The argument against subsidies is still in favor of change, however the belief is that it can happen more rapidly and dynamically without artificial influence or manipulation... and this also allows for the possibility that Solar may not be the best new energy option, but instead could result in something we don't even know yet.

BJJ_GUY
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Re: Socially Responsible

Post by BJJ_GUY » Wed Apr 10, 2019 1:19 pm

The uncertainty of renewable energy... and a lesson in potential dagger to those who overlook investment merits because they want something to be true.

Of course new ideas and failure are part of how our dynamic economy advances, so investment losses are expected in venture capital (and other early stage financing).

Smart calculated investments that fail are one thing. And then there is this...

https://www.nbcnewyork.com/news/busines ... 84021.html

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celia
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Re: Socially Responsible

Post by celia » Wed Apr 10, 2019 1:31 pm

Valuethinker wrote:
Wed Apr 10, 2019 7:07 am
celia wrote:
Wed Apr 10, 2019 4:33 am
ReadyOrNot wrote:
Wed Apr 10, 2019 3:36 am
Why should socially responsible companies be expected to do worse?
I would expect them to do worse because they are using some of their product/ money/ manpower/ time to do something extra that their competitors (who don't claim to be socially responsible) don't do. For example, if they recycle everything they can, that takes extra space, manpower, possibly transportation to do the recycling but the product they sell would probably sell for the same price as their competitor. In other words, they are spending some of their resources on something that will have no financial benefit for them.

Although they may improve the environment, help a designated group of people, or improve world health, these results are not measured on a balance sheet like their profits/losses are.
Recycling has significant economic benefits. I know of large infrastructure company where waste disposal runs into the hundreds of millions of cost. US landfill charges may be lower, this is in Europe.
Those economic benefits are to someone other than the original company (in my example) that collected broken/returned/excess materials while manufacturing something. I was trying to describe a generic manufacturer that was on the "socially responsible" list, not the recycling company whose only business is to recycle.

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Portfolio7
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Re: Socially Responsible [Investing]

Post by Portfolio7 » Wed Apr 10, 2019 9:59 pm

It seems to me that responsible companies can carry a lot of goodwill both in terms of cachet and honest to goodness customer desire to do the right thing. Sometimes that goodwill will translate into profit. Whole Foods comes to mind, before the Amazon Purchase. REI has a certain cachet. Many many more.

Over the last ten years, Vanguard's VFTNX ESG fund has outpaced Vanguard's VFIAX 500 fund. Go back 10 years further and it's a different story. I don't know of any evidence that one is superior to the other, or will be over the long term future.

I own VFTNX, mostly to satisfy DW it's true, but I don't see any harm in it. I suspect when all is said and done, it will serve as a fine replacement to the LCB fund I used for many years.
An investment in knowledge pays the best interest.

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Re: Socially Responsible

Post by Valuethinker » Thu Apr 11, 2019 8:33 am

celia wrote:
Wed Apr 10, 2019 1:31 pm
Valuethinker wrote:
Wed Apr 10, 2019 7:07 am
celia wrote:
Wed Apr 10, 2019 4:33 am
ReadyOrNot wrote:
Wed Apr 10, 2019 3:36 am
Why should socially responsible companies be expected to do worse?
I would expect them to do worse because they are using some of their product/ money/ manpower/ time to do something extra that their competitors (who don't claim to be socially responsible) don't do. For example, if they recycle everything they can, that takes extra space, manpower, possibly transportation to do the recycling but the product they sell would probably sell for the same price as their competitor. In other words, they are spending some of their resources on something that will have no financial benefit for them.

Although they may improve the environment, help a designated group of people, or improve world health, these results are not measured on a balance sheet like their profits/losses are.
Recycling has significant economic benefits. I know of large infrastructure company where waste disposal runs into the hundreds of millions of cost. US landfill charges may be lower, this is in Europe.
Those economic benefits are to someone other than the original company (in my example) that collected broken/returned/excess materials while manufacturing something. I was trying to describe a generic manufacturer that was on the "socially responsible" list, not the recycling company whose only business is to recycle.
I was talking about the cost to a manufacturer that does not recycle -- not a waste management company.

If a manufacturer uses recycled materials they may be able to attach a brand premium to that activity. Or they may simply accept a lower profit margin. Cardboard box manufacturing it seems to me (as a user of same in Europe) that they all use some percentage of recycled material - so it must be economic (I am not aware of any law or regulation that would require them to do so).

Making manufacturers responsible for the final disposal of their products, as is done with laser printer cartridges, seems to me to be something of a no-brainer. Makes companies think about life-cycle sustainability.

MindBogler
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Re: Socially Responsible

Post by MindBogler » Thu Apr 11, 2019 8:53 am

alex_686 wrote:
Tue Apr 09, 2019 9:36 am
If you believe in guns and tobacco, odds are you are not in favor of the Wall Street crowd.
This must be a broad generalization. Do you have any data to support this assertion? Are guns or tobacco, as you say, a belief system? Help us all up on to your train of thought here.

Valuethinker
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Re: Socially Responsible

Post by Valuethinker » Thu Apr 11, 2019 8:56 am

cheezit wrote:
Wed Apr 10, 2019 8:56 am
Valuethinker wrote:
Wed Apr 10, 2019 6:59 am
David Althaus wrote:
Tue Apr 09, 2019 9:10 am
ACADEMIC EXERCIXE ONLY: Believe socially responsible (some might say self-congratulatory virtue signaling) funds have a history of underpeformance each and every year. Wonder why some investment company hasn't introduced a factor fund that eliminates companies deemed by (someone or group of someones) to be socially responsible?

All the best
In effect these types of funds tend to be Value funds. [VICEX is] really a bet on value.
Factor regressions seem to indicate otherwise (period is VICEX's full life, September 2002-present, AQR factors used for the regression):

Code: Select all

Ticker		Beta	Size	Value	Mom.	Qual.	LowVol	Annual Alpha	R^2
SPY		1.00	-0.15	0.01	-0.01	0.07	-0.01	-0.28%		99.3%
VICEX		0.90	-0.01	0.00	0.02	0.05	0.26	-1.27%		75.4%
To me, this looks more like a low-volatility play if it is an intentional play on anything factor-related, *but* who knows what might be throwing that off? I suspect that the poor curve fit can be partially attributed to shocks that affect specific industries, eg. the massive temporary increases in sales volume for civilian firearms manufacturers in 2008/2009 and 2012/2013.
Thank you for that analysis which was very interesting.

I wonder how marijuana stocks will affect it? ;-).

Perhaps tobacco is a better example of Low Vol than of value - these days (when the valuations are higher) that might well be true.

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Re: Socially Responsible

Post by alex_686 » Thu Apr 11, 2019 9:07 am

MindBogler wrote:
Thu Apr 11, 2019 8:53 am
alex_686 wrote:
Tue Apr 09, 2019 9:36 am
If you believe in guns and tobacco, odds are you are not in favor of the Wall Street crowd.
This must be a broad generalization. Do you have any data to support this assertion? Are guns or tobacco, as you say, a belief system? Help us all up on to your train of thought here.
This is a personal antidotal observation.

The people I have run across who advocate for things like this tend to risk seeking, individualist who are nonconformist, and distrustful of institutions.

They are also overconfident, and if they can come up with a better strategy then they feel that they can probably execute it better as well.

I find they have the same attitudes as gold bugs, and their preference to hold physical gold over gold funds.

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Re: Socially Responsible [Investing]

Post by Jeff Albertson » Fri Apr 12, 2019 7:55 pm

David Althaus wrote:
Tue Apr 09, 2019 9:10 am
ACADEMIC EXERCIXE ONLY: Believe socially responsible (some might say self-congratulatory virtue signaling) funds have a history of underpeformance each and every year. Wonder why some investment company hasn't introduced a factor fund that eliminates companies deemed by (someone or group of someones) to be socially responsible?

All the best
Consider evidence-based investing. Vanguard says it's ESG fund, VFTSX, has outperformed the market for the past 1, 3, 5, & 10 years. Congratulate yourself Vanguard!
https://www.morningstar.com/funds/XNAS/VFTSX/quote.html

Somewhat related, the NYT Magazine has an interesting article on how some speculators are placing their bets on the future, including an interview with Jeremy Grantham.
https://www.nytimes.com/interactive/201 ... nergy.html

NYCwriter
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Re: Socially Responsible [Investing]

Post by NYCwriter » Fri Apr 12, 2019 9:58 pm

Actively managed funds are subject to the whims of active management. Parnassus and American regularly beat the SP500, GS's own sustainable fund didn't. As for using ESG ratings, which are more recent, there's already evidence and research showing outperformance and/or potential for outperformance.

The profitability of clean energy is often connected to policy, which can change. But as more corporations seek to profit from climate change it's worth keeping this on the radar.

The positive effect on governance--through gender diversity, for example--is researched as a given.

I'm not a fan of high expense active funds. But we can and should approach ESG investing from different angles. Companies with good governance ratings are less likely to experience the pitfalls of poor governance (directly impacting fundamentals and share price), companies offering innovative or essential solutions are likely to become more valuable over the, and individual investors (millienials, for example) may find investing in companies with high ratings more appealing.

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