Sunday, February 15, 2009

Media keeps on spinnin’

The Globe & Mail’s mutual fund number cruncher column in last Saturday’s edition –“Clear conscience, battered returns” ­– ­left me scratching my head. The author, Shirley Won, says she turned up lots of “red ink” in her analysis of Canadian large and small cap SRI mutual funds. In her story, Won notes that most large-company [SRI] stock funds lost about a third of their value last year and underperformed market benchmarks. But can’t the same be said of Canadian equity funds in general? Of course. And here’s the clincher, from Won herself: “Their performance was not unlike conventional funds,” she concedes.

Won takes aim at two of the worst performers in the Canadian SRI world: Investors Summa SRI and Mavrix Sierra Equity, who both had terrible years, down 49.7% and 64.9%, respectively. True enough, the Mavrix fund was the worst performer in Morningstar’s Canadian Focused Small/Mid Cap Equity category, but four Canadian large caps lost more than Investors Summa SRI.

So is this a case of honest reporting or of a journalist falling for the “performance myth” – the oft-repeated notion that mutual funds managed under SRI mandates underperform their conventional counterparts?

Let’s take a closer look. 66% of actively-managed Canadian equity mutual funds underperformed the TSX in 2008, according to Standard & Poor’s Indices Versus Active Funds Scorecard. In her analysis, Won looked at 18 SRI Canadian equity funds. Of those, seven did better than the benchmark, the S&P/TSX Composite Index, which lost 35% in 2008. That leaves 11 SRI funds that underperformed the benchmark. The Social Investment Organization tracks approximately 30 funds in its various Canadian equity categories. Using those numbers, about 36% of Canadian SRI equity funds outperformed the benchmark, slightly better than the industry average of 34%. It’s not a huge difference, but that’s exactly the point advocates have been making for years: SRI funds, in general, perform comparably to their conventional peers.

We’ll expand more on this theme later this week, when SRI Monitor looks at a study on how sustainability-focused companies are faring during the current financial crisis. The answer just might surprise you.

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