December 22, 2009
‘Best In Class’ Focus Provides Premium Returns
A research study released this past
summer suggests that for optimal returns ethical
investors need to include ‘best in class’ stocks in
companies that they might usually shun. As we know,
ethical investors usually ignore companies because they
are involved in activities, products, or services they
deem unethical or harmful—even if they have ‘high’
ethical or ESG ratings.
Published in the July/August 2009 edition of the
Financial Analysts Journal, the study authors Meir Statman and Denys
Glushkov made the following comment about their
research, “[That] analyzing 1992–2007 returns of
stocks rated on social responsibility... found that this
tilt gave such investors an advantage over conventional
investors. The advantage from tilting toward stocks of
companies with high social responsibility scores is
largely offset by the disadvantage from the exclusion of
stocks of shunned companies.
[And, therefore,] socially responsible investors can
thus do both well and good by adopting the best-in-class
method in constructing their portfolios: tilting toward
stocks of companies with high scores on social
responsibility characteristics but refraining from
shunning stocks of any company.” [Underlining
Now it is my belief that as a higher ethics and
consciousness permeates society there will gradually be
relatively fewer companies engaged in obviously
destructive behaviours. Thus, there will eventually be a
reduced need for negative screening and fewer companies
Yes, I know this sounds rather utopian to some readers.
But especially in the spirit of a dawning new year, I
remain an unflagging optimist about the direction of
humanity. Hence, over the very long term I predict it
will be possible for ethical investors to enjoy superior
returns by only investing in the companies that sit well
with their values.
Ron Robins, MBA, is founder, Investing for the
Huntsville, Canada. He advocates, writes and teaches on
the subject of ethical investing. To contact him, e-mail
Ron Robins or call 705-635-3034.
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