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Fund Spy

Social Responsibility and Fund Performance

Does social screening help or hurt returns?

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Socially responsible mutual funds, which eliminate or favor certain investments for moral or ethical reasons, have been around for decades. Nowadays investors can choose from a much wider variety of such funds than a generation ago, thanks in part to the larger, more diverse universe of mutual fund investors. Five years ago, we surveyed the range of socially responsible mutual funds now available, including both secular SRI funds and religiously oriented ones. While some individual funds have gone away and new ones have appeared since then, the broad structure of the field remains the same.

As more people have become interested in socially responsible investing, some of the most common questions that arise have to do with returns. Some people assume that social screens must hurt fund returns, while others suspect that such screens can actually help--that's it's possible to "do well while also doing good." The situation is actually a bit more complicated than either of these claims.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.