Pioneering study reveals responsible investing offers lower risk and strong returns

Canadian-based RI equity mutual funds outperform peer benchmarks 63% of the time, and provide better downside protection for investors

BANFF, AB, June 2, 2015 /CNW/ - A new academic study commissioned by OceanRock Investments Inc. reveals that responsible investing (RI) is not just good for the environment, the community and corporate governance – it's good for investors seeking better returns, reduced volatility, lower risk and more downside protection of capital.

The study, Canadian RI Mutual Funds Risk/Return Characteristics, was undertaken by the Carleton University Centre for Community Innovation under its director, Dr. Tessa Hebb, a leading RI author and researcher. The study reviewed Canadian-based RI funds that invest based on environmental, social and governance factors (ESG), and measured their financial returns and – for the first time in Canada – risk characteristics against peer benchmarks.

Study findings related to returns show that Canadian-based RI equity mutual funds outperformed their non-RI peers 63% of the time, and 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.

"The study results reveal that responsible investing provides a number of potential advantages for investors, including strong financial returns, reduced risk, and more downside protection than traditional mutual fund investments," said Dr. Hebb. "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 and want to sleep better at night."

Previous Canadian studies have linked ESG to better financial returns, but none have studied whether taking ESG factors into account can protect against downside risk. The study suggests that investors who want to protect their investment assets while enjoying comparable returns should consider adding RI funds to their portfolios.

"This study represents a breakthrough for the RI market and investors who prioritize capital preservation coupled with growth," said Gary Hawton, President of OceanRock. "We have suspected that responsible investing led to reduced risk and greater downside protection for investors, but that notion had not been quantified until now."

"Investors need to consider the growing evidence on the benefits of responsible investing to ensure they are making the most of their investment opportunities," added Mr. Hawton. "And financial advisors need to become more familiar with RI funds to ensure they are proactively providing the best advice to clients and offering the most appropriate investments."

Critics suggest that RI may limit portfolio diversification, leading to reduced returns and increased risk. The empirical evidence, however, shows that RI generally improves overall returns and now, with the release of the study today, we know that RI in Canada also reduces risk and protects assets.

The survey results come at a time of strong and growing demand for RI in Canada. The report notes that RI is one of the fastest growing investment trends in the last decade. RI assets under management grew from $600 billion to more than $1 trillion in the two years to the end of 2013, representing a 68% growth rate.

The study was released at the Responsible Investment Association (RIA) Conference in Banff on Monday, June 1, 2015.

About the Canadian RI Mutual Funds Risk/Return Characteristics Report

The Carleton University Centre for Community Innovation report examines the relationship between risk and return in Canadian RI mutual funds.  The researchers studied whether Canadian RI mutual funds can provide solid financial returns for investors while simultaneously reducing risk, and measured these funds' risk and return characteristics against the average risk and returns for Canadian mutual funds across eight common asset classes in Canada.

Classes include equity, fixed income and balanced mutual funds. Researchers compared risks and returns over one, three, five, and 10-year horizons. They used Morningstar, Inc. industry peer benchmarks and the Responsible Investment Association of Canada's RI mutual fund listing to identify the Canadian RI funds to be used in the study. 

The study's author, Dr. Tessa Hebb, is the director, Carleton Centre for Community Innovation. She holds an MPA in International Finance Economics from Harvard University and a PhD in Economic Geography from Oxford. She is a frequent guest speaker on responsible investment issues in both Canada and the US and she has published many books and articles on responsible investing and impact investing policies, most recently The Next Generation of Responsible Investing (2012).

About OceanRock Investments Inc.

OceanRock Investments Inc. is one of Canada's fastest-growing investment management organizations, managing over $1 billion on behalf of Canadian investors. OceanRock offers a full range of managed portfolio solutions and individual funds to meet the needs of individual and institutional investors. OceanRock is dedicated to offering disciplined, risk-controlled diversified investment solutions to Canadian individual and institutional investors and has a core commitment to RI through its Meritas SRI Funds. OceanRock Investments Inc. is a wholly owned subsidiary of Qtrade Financial Group.

SOURCE OceanRock Investments Inc.

or to obtain a copy of the report, please contact: Ron Cann, Vice President, Marketing & Communications, Qtrade Financial Group, T: 778.331.2056, E: [email protected]