Responsible Investing (RI) is not just good for the environment, the community and corporate governance. It can also provide investors better returns, reduced volatility, lower risk and more downside protection of capital, finds a study by OceanRock Investments Inc.
In fact, Canadian-based RI equity mutual funds outperformed their non-RI peers 63% of the time. Canadian-based RI fixed income and balanced mutual funds outperformed their non-RI peers 67% of the time.
Study findings related to risk metrics show Canadian-based RI equity mutual funds:
- outperformed non-RI peer benchmarks on various risk measures 55% of the time, demonstrating the ability for RI funds to reduce risk in investment portfolios; and
- showed stronger Sortino ratios than their non-RI peer benchmarks 72% of the time, indicating that RI funds provide better downside protection than traditional equity funds.
“Findings related to the significant correlation between RI and improved downside protection are new and notable, especially at a time when so many investors approaching retirement are worried about protecting their assets,” says Carleton University Centre for Community Innovation director, Dr. Tessa Hebb.
Critics suggest RI may limit portfolio diversification, leading to reduced returns and increased risk. The evidence, however, shows RI generally improves overall returns, reduces risk and protects assets.
“Investors need to consider the growing evidence on the benefits of responsible investing to ensure they are making the most of their investment opportunities,” says Gary Hawton, President of OceanRock. “And financial advisors need to become more familiar with RI funds to ensure they are proactively providing the best advice to clients.”