Examination the differences between the ethical and conventional investment mutual funds - Research Paper Example

Download file to see previous pages This led to investors’ social awareness; thus, the concept was to make sure that any form of investment followed ethical criteria. This led to the creation of ethically managed investment funds that have been steadily increasing and represent a large amount of money invested in a country like the United States. About 12% of funds that are being professionally managed are part of a socially responsible mutual fund or of other private portfolios. The fact that there is a very large amount of money invested in this manner has led researchers to attempt to answer the question whether these ethical investment mutual funds are more expensive to run and perform better than the other conventional investment mutual funds. Initial research shows that the ethical investment mutual funds do not invest as widely as the conventional ones. However, there is no major difference between the amounts of money earned by the ethical investment mutual funds when compared to the conventional ones (Diltz, 1995). Statistics also showed that there is no difference in the areas that the two types of investment mutual funds tend to invest in (Sauer, 1997). Most of the evidence necessary to make the important comparisons between the two types of investment mutual funds is mostly found in the United States and the United Kingdom. Additionally, there is no pattern of investment that can conclusively determine the differences between the two types of investment mutual funds. However, when the ethical investment mutual funds are compared according to investment in small companies with the other non-ethical ones, a bias is found (Luther & Matatko, 1994). It showed that the ethical funds were the better performing and earned more than the conventional ones in these small companies. A different study that was conducted by Mallin et al. (1995) attempted to erase the problem of the benchmark that was set on the small companies and the investment by the ethical investment mutual funds. In this study, they considered the size of the ethical fund and the date that it was created. A method of statistics referred to as the Jensen’s alpha was used to analyze their findings. They concluded that ethical funds outperform the other funds using this criterion. The small cap bias that was cited by Luther and Matatko (1994) and that Mallin et al. (1995) attempted to correct led to further research by Luther and Matatko which concluded that using the size of the fund and applying the 2-factor Jensen’s alpha method; there was no conclusive evidence that reflected a difference in the financial performance of both investment mutual funds and that the small cap bias still existed. The study of the differences between the two types of investment mutual funds was complicated at this point. It was further complicated when Dibartolomeo (1996) and Kurtz (1997) claimed that the better performance of the ethical investment mutual funds was due to “large-cap growth exposures” and not due to the social factors essentially considered. This presented further biases attributed to sector and style. The purpose of this paper is to examine subsequent research in order to uncover the differences between the ethical investment mutual funds and the conventional investment mutual funds in order to determine whether the former performs better than the latter. This paper will not aim to discredit any research conducted, nor will it seek to be investigative but it will simply ...Download file to see next pagesRead More