Water-related mutual funds: investment performance and social role

Abstract

Purpose – The purpose of this paper is to examine the performance and diversification value of water-related funds. As pollution, climate change and accelerated population growth threaten water resources worldwide, such resources have become a sought-after asset. For most investors, it is impractical to physically hold water as part of a portfolio; therefore, an open question is how to better gain exposure to this asset. The authors propose a look at water-related mutual funds, an issue not found addressed in the literature. In addition to the investment potential of these funds, investors might be drawn to them as part of a more comprehensive socially responsible agenda. Design/methodology/approach – In the present study, the authors identify and measure the risk-adjusted performance and diversification value of open-end funds dedicated to investments in water-related securities. Jensen’s alpha is used to measure risk-adjusted performance, whereas diversification value is examined by implementing a methodology widely used in the mutual fund literature. Findings – Consistent with previous studies on the performance of ethical or socially responsible mutual funds, the authors found that their sample of water-related mutual funds neither outperform nor underperform two benchmarks. However, the authors also found that they offer potential diversification gains for international mutual funds’ portfolios. Research limitations/implications – Open-end water-related mutual funds have only been recently created, and currently, very few funds are available to investors. These facts limit the sample size and the length of the return series examined. Originality/value – The authors have not found a paper that examines the performance and diversification value of water-related mutual funds. These funds present themselves as a practical way for individual investors to gain exposure to the commodity of water.

Financial Performance of SDG Mutual Funds Focused on Biotechnology and Healthcare Sectors

“…Taking into account that the state of the economy changes, Ibikunle and Steffen [2] and Martí-Ballester [5] find that global renewable energy (green) mutual funds perform similarly to conventional mutual funds, using a conventional index as a market benchmark. Similar empirical evidence is showed by Álvarez and Rodríguez [1], whose mutual funds investing in the water sector perform similarly to the market. This refutes the claim of Solnik [14] that internationally diversified portfolios substantially reduce the idiosyncratic risk derived from the concentration of stocks in one specific economic sector.…”

“…The Standard and Poors Company provides indexes for global markets across industries and for global markets specializing in biotechnology or healthcare industries that fit the characteristics of our sample. Furthermore, S&P indexes have been used by Alvarez and Rodriguez [1] and Nofsinger and Varma [29].…”

“…This study adds to previous finance literature by being, to the best of our knowledge, the first to analyze the financial performance of sustainable development goals (SDG)-related funds (so called thematic mutual funds) focused on the biotechnology and healthcare sectors (SDG 3). While previous studies have focused on analyzing SDG funds related to the water sector [1], the renewable energy sector [2][3][4][5][6] or several thematic sectors as a group [7], limited attention has been paid to mutual funds focused on sustainable development goals in the area of health, although the United Nations encourages the private sector to contribute to progress towards sustainable development goals by also investing in firms related to healthcare issues.…”

Responsible or Thematic? The True Nature of Sustainability-Themed Mutual Funds

“…Responsible investors are shown to be more loyal and less reactive to market shocks, which is consistent with the hypothesis of mixed utility functions with profit and sustainability goals [4,[63][64][65]. Considering the differences in demand, in line with Merton [66] and Luo and Balvers [67], differential expected returns can be linked to an excess demand for stocks of responsible companies and a shortage of demand for stocks of irresponsible businesses [47,68].…”

A Bibliometric and Visualization Analysis of Socially Responsible Funds

“…With respect to green finance, different topics are emerging but it is still an incipient topic and there is a lack of documents about that. Some papers offer an overview of the green funds (or similar) market by comparing their performance and risk [83,84]. Other studies focus on how green funds contribute to the development of economies [71,85,86].…”