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Do Social Responsibility Screens Really Matter When Assessing Mutual Fund Performance?

This paper questions the contribution that socially responsible (SR) screening makes to mutual fund performance. We propose a new decomposition of the variability of SR mutual fund returns making it possible to isolate the contribution of SR screening and compare it with the other traditional sources of performance: market movements, asset allocation (country, industry and style) choices and active management. Our results, based on a sample of SR equity mutual funds investing either globally or solely in the U.S., show that SR screening does contribute to the variability of mutual fund performance, alongside other portfolio choices such as asset allocation decisions and active management. This contribution is rather modest on average (4% for U.S. and 10% for global funds), roughly two times lower than that made by active portfolio choices. There is a significant dispersion among funds: 25% of them have a negligible SR contribution (below 1%) while for 5% of them the contribution of SR screening is above 14%.