How SRI Affect Valuation Multiples and Portfolio Management

Sammanfattning: In this paper, we investigate conventional mutual funds’ and socially responsible investment (SRI) funds’ compositions of high and low valuation multiple stocks as well as potential differences in portfolio management between the two types of funds. Previous research has to a large extent focused on risk-adjusted stock returns and has not been able to be conclusive on whether SRI funds under- or outperform conventional mutual funds. We believe that our research can help to understand why previous research not have been conclusive and show that it is important to analyse investment styles when analysing funds’ performance. We analyse the Swedish asset management market during 2008 to 2012 and our dataset consists of 15 conventional mutual funds and 13 SRI funds. We find significant differences where SRI funds invest in stocks with higher valuation multiples, i.e. less risky stocks, than conventional mutual funds. However, this difference is not explained by differences in valuation of socially responsible stocks but by that the portfolio managers of SRI funds invest differently in comparison to portfolio managers of conventional mutual funds.