A South African perspective on the investment performance of ethical funds compared to conventional funds and investor behavior as regards ethical funds

[摘要] Ethical investing has become increasingly prevalent in recent years and mirrors arise in shareholder activism, consumer ethics and corporate social responsibility.Shariah funds are a subset of ethical funds. The rise in popularity of ethical fundshas raised questions as to whether ethical funds perform better than conventionalfunds, and whether ethical funds are riskier than conventional funds. A number ofstudies have been carried out in different countries utilising the traditionalperformance measures as well as factor models to determine the risk profile andreturns of ethical funds compared to conventional funds. These studies have shownthat the results are country specific and hence each country needs to be analysedseparately.The aim of this study is to investigate ethical funds (incorporating Shariah funds) inthe South African context. The study examines the performance and risk profile ofethical funds relative to conventional funds utilising traditional performance methodsas well as the CAPM model and Fama French 3-factor model. Furthermore, thestudy determines the factors that influence investors to invest in ethical funds and toexamine their investment preferences when choosing between conventional fundsand ethical funds through a survey of Muslim investors. Finally, the study examinesthe role of advertising in ethical fund investment and investigates whether themarketing material of ethical funds is aligned to investor requirements by utilisingcontent analysis to compare the fact sheets of various mutual funds for the presenceof factors identified as important by investors.The empirical results show that conventional funds outperformed ethical funds with agreater variability of return over a truncated time period. Both ethical andconventional funds were driven primarily by the market return with no clear stylebias. In fact, ethical funds had a stronger beta to the ALSI than to the JSE SRI index.The qualitative analysis showed that the sampled investors perceived conventionalfunds as offering better returns, but being more risky. The sampled investors werewilling to undertake financial sacrifice in order to invest according to their faith. Themost important source of information regarding investments was cited asprofessional advice, followed by word of mouth and advice from family and friends.Advertising came in behind these factors and was not an influential source ofinformation for the sampled investors. The factors most important to investors whendeciding to invest in a fund was the philosophy of the fund (i.e. it’s investmentstrategy or ideology) followed by the risk profile of the fund and past returns of thefund.The content analysis showed that the factsheets of South African mutual funds werealigned to the factors identified by the sample of investors as most important withinfluencing their decision to invest. Moreover, conventional funds focused more onreturns than risk, with ethical funds focusing more on risk than return – thus fundstended to emphasise their strong points most in their factsheets.

[发布机构] University of the Witwatersrand