Fund Performance and Social Responsibility: New Evidence using Social Active Share and Social Tracking Error

Using a sample of 2516 U.S. mutual funds over the period 2010-2017, we examine the effects of socially responsible investing (SRI) on mutual fund performance. We use two proxies of deviation from SRI: social active share (SAS) and social tracking error (STE) which, respectively, capture the differences in holdings and returns between a fund and a socially responsible index, namely the MSCI KLD 400. In the univariate analysis, the SAS results align with more socially responsible funds outperforming less socially responsible funds, while STE provides mixed evidence. The multivariate analysis shows, for both SAS and STE, that more socially responsible funds outperform their less socially responsible peers. Our results are consistent with the hypothesis that SRI does not damage fund performance.