SRI Funds Performance & Strategy Frédéric Lorenzini Director of Research, Morningstar

Frédéric Lorenzini

Director of Research, Morningstar

SRI Funds Performance & Strategy Frédéric Lorenzini TBLI Europe, Paris November 9th 2006

Frédéric Lorenzini TBLI Europe, Paris November 9th 2006

Methodology Facts & Figures Questions

Methodology How is talking ? Morningstar has expertise with funds, not specifically with SRI Difficulties to define consistent universes Different definition according the different players Information about what is really inside the fund Information about the management process Difficulty of creating peer groups How do SRI funds compare to regular funds ? Lack of historical data

How is talking ?

Morningstar has expertise with funds, not specifically with SRI

Difficulties to define consistent universes

Different definition according the different players

Information about what is really inside the fund

Information about the management process

Difficulty of creating peer groups

How do SRI funds compare to regular funds ?

Lack of historical data

Facts & Figures How do SRI funds compare to regular funds ? Limited population Large Cap. over represented * Secular funds, excluding religious 4 6 6 International Stock 4 5 8 Allocation 7 12 12 Domestic mid and small cap 18 29 30 Domestic large cap 10 year rec. 5 year rec. 3 year rec. SRI Equity Funds - US Market

How do SRI funds compare to regular funds ?

Facts & Figures The percentage of distinct strict secular screened funds that beat the average returns in their category Areas with good track records Under performance with some assets classes * Secular funds, excluding religious 2/4 (50%) 4/6 (66.7%) 2/6 (33.3%) International Stock 2/4 (50%) 2/5 (40%) 1/8 (12.5%) Allocation 2/7 (28.6%) 3/12 (25%) 3/12 (25%) Domestic mid and small cap 12/18 (66.7%) 16/29 (55.2%) 15/30 (50%) Domestic large cap 10 year rec. 5 year rec. 3 year rec. SRI Equity Funds - US Market

The percentage of distinct strict secular screened funds that beat the average returns in their category

Facts & Figures Situation is globally the same in Europe, with a bigger number of funds Europe Large Cap. : 82 funds Europe Smid … 6 Global Equity Large Cap : 59 Global Equity Smid… 7 North America : 6 Asia – Pacific : 3 … But few funds with 10 year track record

Situation is globally the same in Europe, with a bigger number of funds

Facts & Figures SRI funds are not necessarily under performing in term of returns Limited population makes asset allocation more difficult

SRI funds are not necessarily under performing in term of returns

Limited population makes asset allocation more difficult

Facts & Figures Another aspect of SRI funds A smaller diversification for managers 76 102 Asia – Pacific 88 92 North America 62 77 Global Equity Smid 95 120 Global Equity Large Cap 72 75 Europe Smid 76 83 Europe Large Cap. SRI Global Number of Holdings

Another aspect of SRI funds

Questions Large Cap. structurally over represented in indices Limited stock picking for fund managers SRI index : investable universes or performance benchmark ? Which performance : returns or SRI ? How SRI performance can be measured ? Benefit of best-in-class approach : identifying alpha & beta

Large Cap. structurally over represented in indices

Limited stock picking for fund managers

SRI index : investable universes or performance benchmark ?

Which performance : returns or SRI ?

How SRI performance can be measured ?

Benefit of best-in-class approach : identifying alpha & beta