USA MUTUALS

The legacy of USA Mutuals is, and will continue to be, rooted in the satisfaction of the thousands of investors we’ve had the privilege to serve. Their expectations are our expectations. Their success is our success. Yes, it can, and should be, that simple
Our simple mandate: Create an environment in which the company’s goals and expectations are truly aligned with our investors.
 

RESEARCH

ACADEMIC RESEARCH
Sin Stock Returns

Frank J. Fabozzi, K.C. MA, and Becky J. Oliphant

In this article, the authors examine the issue of how social values affect economic values. Based on a small subset of the stock universe that has been generally associated with sin-seeking activities, such as alcohol consumption, adult services, gaming, tobacco, weapons, and biotech alterations, the authors find that a sin portfolio produced an annual return of 19% over the study period, unambiguously outperforming common benchmarks in terms of both magnitude and frequency. Several likely reasons for the positive excess returns in sin stocks are identified. The authors argue that trustees or fiduciaries who develop institutional investment policy statements should fully understand the economic consequences of screening out stocks of companies that produce a product inconsistent with their value systems. In addition, institutional investors should question if the cost to uphold common social standards is worthwhile.​

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The Price of Sin: The Effects of Social Norms on Markets

Harrison Hong and Marcin Kacperczyk

We provide evidence for the effects of social norms on markets by studying ‘‘sin’’ stocks—publicly traded companies involved in producing alcohol, tobacco, and gaming. We hypothesize that there is a societal norm against funding operations that promote vice and that some investors, particularly institutions subject to norms, pay a financial cost in abstaining from these stocks. Consistent with this hypothesis, we find that sin stocks are less held by norm-constrained institutions such as pension plans as compared to mutual or hedge funds that are natural arbitrageurs, and they receive less coverage from analysts than do stocks of otherwise comparable characteristics. Sin stocks also have higher expected returns than otherwise comparable stocks, consistent with them being neglected by norm-constrained investors and facing greater litigation risk heightened by social norms. Evidence from corporate financing decisions and the performance of sin stocks outside the US also suggest that norms affect stock prices and returns.

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The Price of Taste for Socially Responsible Investment

Rocco Ciciretti, Ambrogio Dalo, and Lammertjan Dam

The former driver positions SRI in the conventional risk-return framework, the latter entails that investors screen stocks out of their portfolios based purely on their taste for such assets, uncorrelated to risk and return considerations. Theoretically, the screening of certain assets based on investors’ taste should lead to a return premium on the screened assets in equilibrium. In this paper, we disentangle the different contributions of risk and taste in generating risk-adjusted returns for socially responsible assets. By ruling out both systematic and residual risk components, we try to quantify whether and to what extent investors pay a price, in terms of lower returns, due to their taste for responsible assets. Using a sample of 1000 firms from the U.S., Europe, and Asia, between 2005 and 2014, we find evidence for the taste effect and estimate the associated under performance at 4.8% annually. Our results are robust against different model specifications and test assets.

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