Competition of Socially Responsible and Conventional Mutual Funds and its Impact on Fund Performance

Abstract

This paper examines the impact of both socially responsible (SR) and conventional entrant funds on SR incumbent funds using an overlap in portfolio holdings to measure the impact of competition in the US mutual fund industry. This paper’s findings indicate that over the past decade the increase in competition from SR entrants has been associated with an increase in fees but not in capital flow. Moreover, our results show that the increase in the number of SR fund entrants does not have a negative impact on fund performance. This finding implies that despite the significant increase in the number of SR funds entering the market, open and free competition fosters the performance of SR fund participants. Our study concludes that despite the recent growth in the number of SR funds, the SR mutual fund market does not exhibit the key features of a competitive market.

Keywords: Mutual funds, Competition, Socially responsible investing

JEL Classification: G11, G23