Empirical studies have shown that more than 90 percent of a portfolio's returns comes from the asset allocation decision, according to "Determinants of Portfolio Performance II: an Update, "Bringson, Singer, & Beebower, Financial Analysts Journal, May/June 1991. Overall performance depends primarily on the decision about how much to allocate to each asset class (i.e. U.S. stocks and foreign stocks versus bonds). For the asset allocation decision, we rely on the power of LPL Research, one of the largest independent research organizations in the industry. We then combine that research with our firm's specialty research in the area of BRI/faith-based investing, and select BRI fund managers to invest in each asset class.
Of course, past performance is not a guarantee of future results, and there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.
Diversification and asset allocation does not protect against market risk. For social, moral, and faith based investments, returns may be lower than if the investor made decisions based solely on other investment considerations, but they could also be higher.
Several independent studies suggest that there is no statistical difference between passive benchmarks and the same benchmarks filtered for values:
Note: All investing, including stocks, involves risk including loss of principal. No strategy assures success or protects against loss. Returns may be lower than if the advisor made decisions based solely on other investment considerations, but they may also be higher.
The Wages of Social Responsibility
OVERVIEW: Meir Statman and Denys Glushkov analyzed the returns of stocks rated by social responsibility over a fifteen-year period (1992-2007).
FINDING: This study found that tilting a portfolio toward stocks that were rated highly on such socially responsible characteristics as community, environment, and employee relations provided an advantage over conventional investors. This advantage was largely offset by excluding stocks in sectors such as tobacco, alcohol, gambling, and weapons. The net effect was no material impact.
Socially Screened Portfolios: An Attribution Analysis of Relative Performance
OVERVIEW: In this 2011 study, “Lloyd Kurtz and Dan BiBartolomeo statistically analyzed the performance of the KLD 400 Social Index2 relative to the S&P 500 Index1 from 1992 to 2010.
FINDINGS: The authors determined that any performance differences are fully explained by conventional investment factors. According to the authors, “General assumptions of reduced return are wrong and investors do not sacrifice long-term returns when pursuing corporate social responsibility."
The primary drivers of performance for BRI fund managers are not very different from that of other non-BRI fund managers. What primarily drives performance is the talent of the underlying fund manager, and keeping an eye on expenses. Many of the BRI fund managers we work with have earned 4-star and 5-star rankings on Morningstar, and several fund managers have been awarded the Lipper award by Wall Street. Of course, past performance is not a guarantee of future results, and rankings may change from year-to-year.
1The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
2The MSCI KLD 400 Social Index comprises companies with high Environmental, Social and Governance (ESG) ratings and excludes companies involved in Alcohol, Gambling, Tobacco, Military Weapons, Civilian Firearms, Nuclear Power, Adult Entertainment, and Genetically Modified Organisms (GMO). The Index aims to serve as a benchmark for investors whose objectives include owning companies with very high ESG ratings and avoiding companies that are incompatible with specific values-based criteria. Launched in May 1990 as the Domini 400 Social Index, it is one of the first Socially Responsible Investing (SRI) indexes. Constituent selection is based on data from MSCI ESG Research.
*Indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Complimentary Moral Review of your Investments
If our mission and vision resonate with you and you would like to learn more about aligning your investment choices to your values, we invite you to contact us. We offer a complimentary initial consultation appointment and moral review of your current investment holdings. (See also the Screen-It Clean-It PDF attachment below.) To request your complimentary initial consultation appointment, click here, or simply call us at (509) 279-0970.