Assessing the Relative Risk-adjusted performance of SRI funds before and duringthe COVID-19 pandemic: evidence from South Africa

Preston Kyle Winfred (), Mabutho Sibanda () and Frank Ranganai Matenda ()
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Preston Kyle Winfred: University of KwaZulu-Natal
Mabutho Sibanda: University of KwaZulu-Natal
Frank Ranganai Matenda: University of KwaZulu-Natal

Acta Universitatis Danubius. OEconomica, 2024, issue 20(3), 72-100

Abstract: Socially Responsible Investing (SRI), belongs to a category of investment strategies aiming to reduce the negative impacts associated with financial investments, while yielding competitive returns. The literature reveals inconsistent results when comparing the performance of SRI funds to traditional funds, limiting investor awareness on the performance of SRI funds as an investment substitute. The purpose of this research paper is to increase investor awareness on suitable investment substitutes, considering the changes made to “regulation 28 of the Pension Fund Act of 1956”, and to increase SRI in South Africa. The objective is to determine if SRI funds, and their matched traditional counterpart funds provide a higher relative risk-adjusted (RA) return than the JSE ALSI before and during the COVID-19 pandemic. This is achieved by using the Fama-French 3-Factor Model and the Modigliani and Modigliani measure. The results reveal that, when controlling for systematic risk, SRI funds and traditional funds are unable to outperform the JSE ALSI before and during the COVID-19 pandemic. When controlling for unsystematic risk, a small number of SRI funds (30%; 20%) and traditional funds (30%; 30%) outperform the JSE ALSI, before and during the COVID-19 pandemic, respectively. The results imply that institutional and retail investors should include SRI funds in their investment strategy alongside traditional funds or as a substitute for traditional funds during economic crises.

Keywords: Socially Responsible Investing; risk-adjusted; COVID-19; Fama-French 3-factor model; Modigliani and Modigliani measure (search for similar items in EconPapers)
Date: 2024
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