Recent years have witnessed an increasing growth in mutual funds that invest according to social criteria. As a consequence, the financial performance of these portfolios has attracted the interest of academics and practitioners. This paper investigates the performance of a sample of socially responsible mutual funds from seven European countries investing globally and/or in the European market. Using unconditional and conditional models, we assess the performance of these funds in comparison to conventional and socially responsible benchmark portfolios. The results show (...) that European socially responsible funds present in general neutral performance in relation to both conventional and socially responsible benchmarks. However, performance estimates seem to be slightly higher when funds are evaluated in relation to socially responsible indices. Our results also show that socially responsible funds are more exposed to conventional than to socially responsible indices. Furthermore, conventional benchmarks are better able to explain fund returns than socially responsible benchmarks. These findings are robust to both unconditional and conditional models of performance. We also observe that conditional models lead to a slight improvement of performance estimates and to the explanatory power of the models, both when conventional and socially responsible benchmarks are considered. This is consistent with most previous empirical findings on conditional performance evaluation. Our results show that investors who wish to hold European funds can add social screens to their investment choices without compromising financial performance. (shrink)

This paper presents a comprehensive analysis of socially responsible funds in Sweden by assessing fund managers' abilities and performances across different market states. These issues are analyzed at the aggregate and individual fund levels. The paper also presents several new statistical tests that allow more precise inferences about differences in performance and the variability in fund returns arising from different benchmarks. In general, SR and conventional funds perform similarly to the market. At the aggregate level, SR funds investing in Sweden (...) and Europe perform similarly to conventional funds, while those investing globally tend to underperform. This underperformance seems to be linked with poor selectivity abilities of global SR fund managers. For individual funds, the performance of both types of funds is more similar. Most funds perform similarly in crisis periods compared to non-crisis periods. Overall, our results are consistent with a mature market for SR investing and support the view that the similar performance of SR and conventional funds is associated with the mainstreaming of SR investment in Sweden. These findings encourage SR investing both by socially conscious investors, who wish to align their social values with their investment decisions, as well as by conventional investors, who will not be penalized by investing in these funds. We also call attention to the difficulties investors face when trying to identify funds with high social standards, considering that there is scarce information on the extent to which each fund holds stocks that comply with ethical and social criteria. (shrink)

This article investigates whether sustainability labels for mutual funds in Europe provide consistent signals regarding funds’ sustainable characteristics. Specifically, we assess the alignment of signals conveyed by third-party and self-declared labels. Among the first typology, we consider labels sponsored by government and nonprofit organizations (GNPOs) alongside Environmental, Social, and Governance (ESG) ratings from commercial data vendors. The latter category includes the Sustainable Finance Disclosure Regulation (SFDR) classification and an ESG-related name. Our findings indicate that equity funds with GNPO labels are (...) more likely to exhibit top-tier ESG ratings and alignment with self-declared sustainability signals, namely Article 9 of SFDR and fund names. Furthermore, holding government and multiple GNPO labels is linked to other signals indicating higher sustainability standards. In addition, funds tend to experience an improvement in Morningstar globes after receiving a GNPO label, consistent with GNPO labels signaling funds of the high-quality type. The results regarding label alignment in fixed-income funds are less conclusive. Our findings underscore the need for credible signals in view of the growing number of sustainability labels available to investors. (shrink)