Enhancing the Returns of SRI Portfolios Using a Minimum Variance Small-Basket Strategy

10 Pages Posted: 14 Jun 2013

See all articles by Glen A. Larsen

Glen A. Larsen

Indiana University - Kelley School of Business - Department of Finance

Date Written: May 01, 2013

Abstract

The focus of this research is on enhancing the returns of socially responsible investment (SRI) portfolios by constructing minimum variance small-basket portfolios. The results suggest that individual investors and professional financial planners on behalf of their clients can realize enhanced performance relative to SRI funds that contain a large number of stocks by constructing minimum variance portfolios that generally contain fewer than 10 stocks. Over the 10-year period from 2002 through 2011, which is a function of the availability of SRI fund return data, the average annual excess returns for the minimum variance small-basket portfolios range from 2.59% to 6.99% relative to the larger SRI funds from which the small-basket funds are constructed. Measures of total risk and downside risk further support the enhanced performance of the minimum variance small-basket portfolio strategy. Perhaps most importantly, the minimum variance small-basket strategy that we describe can be easily implemented by individual investors or by professional financial planners on behalf of their clients.

Keywords: Minimum Variance Portfolios, SRI, Small-Basket Strategy

JEL Classification: G11

Suggested Citation

Larsen, Glen A., Enhancing the Returns of SRI Portfolios Using a Minimum Variance Small-Basket Strategy (May 01, 2013). Available at SSRN: https://ssrn.com/abstract=2279115 or http://dx.doi.org/10.2139/ssrn.2279115

Glen A. Larsen (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
317-274-3794 (Phone)

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