Reference no: EM132375244

Assessment Task: Report on Socially Responsible Investment (SRI)

There has been considerable growth in socially responsible investments (SRI) in recent decades. Socially responsible investments currently stand at 26 percent of all professionally managed assets globally (Global Sustainable Investment Alliance, 2016) and in Australia, SRI constitutes almost half of all funds under management (Responsible Investment Association Australasia, 2016). This growth is puzzling in the context of modern portfolio theory, as SRI should amount to a constraint on the feasible set of investments that decreases investors' mean-variance utility. However, alternative explanations have been put forward to justify the SRI choice.

Merton (1987) shows that in the context of incomplete information, if information on social responsibility is concentrated amongst investors that adopt SRI, they can obtain higher returns. Alternatively, investor preferences may differ from the neoclassical model of expected utility, enabling them to trade maximum expected return in their investments for other benefits, such as psychological rewards (Bollen, 2007; Renneboog, Ter Horst, & Zhang, 2008) or superior performance in down markets (Lins, Servaes, & Tamayo, 2017).

A considerable volume of academic studies has examined the relative performance of SRI, with extant Australian studies providing mixed evidence on the ability to generate abnormal returns from (Bauer, Otten, & Rad, 2006; Humphrey & Lee, 2011; Jones, Van der Laan, Frost, & Loftus, 2008; Renneboog et al., 2008).

Required:

You are a team of researchers working within Australian Super.

You have been asked by the Investment Director to make a recommendation as to whether the firm should allocate more resources to marketing their "Socially Aware" product which can be marketed to investors as an Ethical Investment product.

You will need to research the makeup of the Socially Aware product and compare this product to two other Australian Super products.

Also, you need to create a portfolio of at least 3 products that generate an optimal return for an investor aged 45 years old. (Hint: be sure to explain the assumptions you have taken in terms of the investor's risk preference).

Analysis period

July 1, 2008 - June 30, 2019

In this report, you need to present the following:

A) Executive Summary
This should provide a summary of your report including a precis of the significant pieces of literature, the main findings of your analysis, and conclusion.

B) Introduction
Introduction should provide a succinct background that places the analysis into context. Also, describe the Socially Responsible Investment (SRI) approach and outline the inclusive definition of Socially Responsible Investment (SRI).

C) Literature Review
Compare and contrast the performance of SRI and conventional (non-SRI) investments from the existing studies.

D) Analysis
Compare the risk and return of SRI and conventional (non-SRI) investments within the Australian Super product mix.

E) Conclusion
Conclude on the basis of analysis and literature review.

Referencing
Appropriately cite reference for original work, author(s)etc. Citation and referencing must conform to Harvard referencing system.

Attachment:- Socially Responsible Investment.rar