In this article we extend the research on risk-based asset allocation strategies by exploring how using an SRI universe modifies properties of risk-based portfolios. We focus on four risk-based asset allocation strategies: the equally weighted, the most diversified portfolio, the minimum variance and the equal risk contribution. Using different estimators of the matrix of covariances, we apply these strategies to the EuroStoxx universe of stocks, the Advanced Sustainability Performance Index (ASPI) and the complement of the ASPI in the EuroStoxx universe from March 15, 2002 to May 1, 2012. We observe several impacts but one is particularly important in our mind. We observe that risk-based asset allocation strategies built on the entire universe, concentrate their solution on non-SRI stocks. Such risk-based portfolios are therefore under-weighted in socially responsible firms.
Socially responsible investment Alternative and risk-based strategies Performance Diversification Turnover Robust covariances matrix
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We benefited from comments by Lloyd Kurtz, Raul Leote de Carvalho, Thierry Roncalli and Guillaume Weisang. We also benefited from comments by referee of the 1st Geneva Summit on Sustainable Finance and by participants to the 5th ARCS Conference at the University of Berkeley, the 30th AFFI Conference at the EM Lyon Business School and the 3rd FEBS International Conference at the ESCP Europe Business School. We are grateful to Vigeo for granting us access to their data. We thank Fouad Benseddik and Antoine Begasse from Vigeo for their support in understanding the methodology of these data. An early version of this work was presented in a working paper entitled “Smart Beta Strategies: the Socially Responsible Investment case”.
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