Using Socially Responsible Investing When Deciding on an Investment

STP) and one risky asset (i.e. US Equities) and the expected return and risk are also linearly related to the weight in the risky asset. The highest Sharpe ratio from these risk-return opportunities available is also where 90% of the portfolio is comprised of STP and 10% of US Equities.

Because corporations are established to profit and shareholders invest money with expectations of a greater return, managers cannot be given a directive to be “socially responsible” without providing specific criteria of checks and balances to which needs to adhere. Therefore, it is imperative to the success of a corporation for managers to not act solely but rather to act within the policies of the shareholders.

Advisors and investors would do well to pay as much attention to the expected volatility of any portfolio or investment as they do to anticipated returns. Moreover, all things being equal, a new investment should only be added to a portfolio when it either reduces the expected risk for a targeted level of returns, or when it boosts expected portfolio returns without adding additional risk, as measured by the expected standard deviation of those returns. Lesson 2: Don’t assume bonds or international stocks offer adequate portfolio diversification. As the world’s financial markets become more closely correlated, bonds and foreign stocks may not provide adequate portfolio diversification. Instead, advisors may want to recommend that suitable investors add modest exposure to nontraditional investments such as hedge funds, private equity and real assets. Such exposure may bolster portfolio returns, while reducing overall risk, depending on how it is structured. Lesson 3: Be disciplined in adhering to asset allocation targets. The long-term benefits of portfolio diversification will only be realized if investors are disciplined in adhering to asset allocation guidelines. For this reason, it is recommended that advisors regularly revisit portfolio allocations and rebalance

After reviewing the stock strategies sheet I concluded that I used a two of the strategies. When I first invested into the market I chose companies that I was familiar with but also morally aligned with my personal beliefs. According to the stock strategy sheet this is considered Social Responsible Investing. I demonstrated this through investing in stocks such as Facebook, Starbucks and Coca-Cola. All of these companies had released either advertisements, public statements or took initiative to make a difference in our country. For example my first stock Facebook Mark Zuckerberg and his wife planned to donate 99% of their Facebook shares which at the time was about 45 billion dollars. In the statement Zuckerberg said the donations were to

2. Analyze Structured Navigation. Is this a valid measurement of progress in early stage investing? Could such a program ever be a hindrance to company development?

In 1974, the Employee Retirement Income Security Act (ERISA) was enacted as a federal law that establishes minimum standards for investment allocation in pension plans. After the establishment of ERISA, asset allocation and modern portfolio theory became standard practice because portfolio managers are required to be in compliance with the ERISA when they allocate investors’ capital in pension plans. In the existing academic literature, Del Guercio (1996) present large amount of evidence in his study that “Prudent-Man” regulations of US pension funds distorts portfolio choice towards high quality and less risky stocks.

The major issue is that the 13F reports only indicate what actually went into the portfolio – whereas the most value a SSA adds to the BSA investment process is before the stock enters the portfolio. Although the authors are primarily focused on the BSA to SSA information flow, without adequately capturing the nature of the relationship at the most important phase – the results are likely to be misrepresentative.

Over the past few years, disruptive ideas, innovations and economic forces have reshaped the way we live. Investors are constantly researching new and promising ideas in order to capitalize on themes that will drive tomorrow’s markets. Broadly speaking, thematic investing is the approach of taking advantage of future trends while just as importantly avoiding the losers. Its forward looking approach stands in contrast to a relative investing strategy which relies heavily on market capitalization to determine weights in a portfolio. On the other hand thematic investing is a top down investment approach providing investors an opportunity to generate alpha. Fundamentally, the objective of thematic investing is to not only generate superior returns but is evolving traditional index investing.

Internationally, the flow of capital across national borders and into markets once believed to be impregnable is occurring at the speed of light. Technological innovation, accessibility to international market economies, and increased globalization has expanded the universe of securities available for investments and more importantly portfolio diversification. The developments mentioned above questions traditionally accepted principles by investors who believed that investing solely in U.S. securities would result in a better risk-return tradeoff. Prudent investors have known that diversifying across industries and markets will lead to a given level of expected return at a significantly lower level of risk, and vice versa. However, the advantages of such diversification are limited due to the same cyclical economic fluctuations that all assets (or companies) in a particular country are exposed to.

Motives for Corporate Social Responsibility (Graafland, J. & Mazereeuw-Van der Duijn Schouten, C. 2012) analyze the motivations of directors to take responsibility for the labor, environmental and social aspects in business. It distinguishes the Corporate Social Responsibility (CSR) by conducting a survey consisting of a sample of 473 executives. What is more, the motives are classified as three types: “financial motives”, which is external, “ethical and altruistic” which are internal. the corporate social responsibility is divided into several aspects like working conditions and natural environment, which may cause different motivations.

RA developed its “Fundamental Index (FI) methodology”, which supports the use of firm´s fundamentals rather than their current, often widely fluctuating market capitalizations, to establish portfolio weights in an index. The underlying assumption is that due to market inefficiencies and the resulting pricing errors, market-cap-weighted indices are flawed as they overweight overvalued companies while underweighting undervalued companies. Thus, the value proposition of RA is to create value by providing customers with superior economy-centric passive investment approaches that capture more accurately true long-term value.

3.investors construct portfolios via asset segregation, meaning that they tend to focus on an asset’s individual investment features versus its impact on the overall portfolio position

As a result, many different factors have been tested across different markets. Historically, most studies have relied on general economic theories or empirical observations in selecting Factors. Benaković and Posedel (2010) emphasize Interest rates, oil prices, and industrial production. Chen, Roll and Ross (1986) use industrial production growth, inflation, bonds spread, NYSE stock market returns, oil prices, interest term structure, and consumption to decompose returns of a portfolio with general securities. Bodurtha, Cho and Senbet (1989) even uses international factors. Most of literatures have focused on applying different factors with a portfolio of many securities, as it is widely known that idiosyncratic risks diversifies away as the number of

Generally, researchers are interested in studying factors that can be applied to predict asset prices. Relied on Markowitz (1952)’s earlier work on diversification and modern portfolio model, it is known that idiosyncratic risk can be diversified away and only systematic risk matters to investors. Treynor (1961), Sharpe (1964) and Lintner (1965) independently contributed to the CAPM to explain the relationship between the systematic risk factor and securities returns. This emphasize the importance of systematic risk for investors to estimate asset price in order to earn excess return on market.

So, despite the bad name and all of the bad marks that it gets, there is some rational underpinnings to all of this that does make sense to me. If you are forcing yourself to invest passively, then lest invest passively, even better. So, what people have been doing is investing in, or one methodology, with the advent of the notion, not just of quality as an investment attribute, but maybe there are a lot of other attributes that can be isolated.