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(June -2002) SRI manager performance varies
The performance of Socially Responsible Investment (SRI) managers still varies widely and their style remains manager dependent, research by Frontier Investment Consulting has found.
Frontier’s SRI specialist Kerrie Williams says the research, the first of its kind to address the specific needs of Australian super funds, reveals that while managers tend to have a growth and small cap bias, this is not the case for all products.
As a result, she advises super funds to monitor the characteristics of their SRI managers in the context of their overall portfolio to avoid style biases.
Frontier’s study found that the returns of SRI managers are extremely variable across managers and across time. “This is influenced by the growth bias in some cases, although this has dropped off recently [as market conditions started favouring value managers],” Williams says.
SRI manager fees are usually higher than those paid to active equity managers, but Williams says this makes sense because they are managing an extra layer.
She notes that over the years, Australian managers entering the SRI arena have improved their focus on risk. These managers have also moved away from pure negative screening towards more positive screening and towards taking a “best of sector” approach.
Williams says after examining the legal and regulatory framework, it is clear that financial benefits have to be the driver behind SRIs. As a result, she believes that SRI should be one investment choice offered to members, rather than a fund’s default option or part of the mainstream fund.
However, she adds: “We believe that SRI can become a mainstream form of investment, subject to certain hurdles being met. These include a high degree of diversification, consistency in the characteristics of particular portfolios over time and a reduction in fees to levels around those charged for other comparable forms of active management.”
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