RESPONSIBLE INVESTING IN SOUTH AFRICA – A RETAIL PERSPECTIVE

This research addresses a gap in the literature on responsible investing (RI) in South Africa by studying the risk-adjusted performance of RI unit trusts available to retail investors. The Sharpe, Sortino and Upside-potential ratios for 16 RI unit trusts, their benchmarks and a matched sample of conventional unit trusts were calculated for the period 1 June 1992 – 31 August 2011. Most of the RI unit trusts in South Africa use exclusionary screens based on Shari’ah (Islamic) law with the remaining funds focusing on social issues, such as labour relations and social development. The total expense ratios of RI unit trusts are slightly higher than those of conventional funds, but no different from that of their benchmarks or a matched sample of conventional unit trusts. It is suggested that local assets managers expand the range of retail RI unit trusts available in the country.


INTRODUCTION
Although no universally accepted definition of responsible investing (RI) exists, it essentially refers to the integration of ethical as well as environmental, social and corporate governance (ESG) considerations into investment analysis and ownership practices (Herringer, Firer & Viviers, 2009).Investors engage in RI for different reasons.Some investors wish to invest in line with their personal values and they usually take a stand on what they do not want to own.The use of exclusionary screens to avoid 'sin stocks' is the oldest form of RI (often called ethical investing) and is mostly favoured by private investors, churches, community groups and human rights organisations (Sparkes & Cowton, 2004).
Other investors may engage in RI in order to transform corporate policies and practices on a range of ESG issues.They are more likely to use positive screening, best-in-sector screening and/or shareholder activist strategies.However, in order for these strategies to be effective, investors need to have a significant stake in investee companies.Thus these approaches require the support of large institutional investors such as pension funds, insurance companies and commercial banks (O'Rourke, 2003).A third motive behind RI relates to investors' desire to improve the standard of living in local communities, for example, by investing directly in social infrastructure development (Viviers, Hand & Ractliffe, 2011).These investments, often called community, targeted or impact investments, likewise require the support of investors with deep pockets to be effective (De Cleene & Sonnenberg, 2004).
According to the Association for Savings and Investments SA (2011a), there were 943 collective investment schemes registered on 30 June 2011.Of these 52 had RI mandates (22 active unit trusts and 30 non-unitised funds), translating to 5.15% of all collective investment schemes.
Institutional investors in South Africa have long justified their lack of interest in RI by arguing that such a strategy involves a financial sacrifice (Eccles, Nicholls & De Jongh, 2007:2).This claim is not entirely without merit.Many of the early RI funds financed black economic empowerment deals through special purpose vehicles (SPVs).The SPV structure, however, proved unsustainable in the aftermath of the emerging market crisis in 1998 and led to the demise of several RI funds (Bridge, 1999;Hirsch, 2005).As a result of these losses, many institutional investors become reluctant to adopt RI strategies (Bacher, 2004;Visser, 2005).A study by Viviers, Bosch, Smit and Buijs (2008) on the risk-adjusted performance of RI funds in South Africa, however, revealed that the performance of these funds over the period 1 June 1992 to 30 March 2006 was not significantly different from that of a matched sample of conventional funds.Based on their findings, Viviers et al. (2008) recommended that South African investors could consider RI funds as part of a well-diversified investment strategy without harming their investment performance.
Growth in the South African RI market has nonetheless continued to lag behind international counterparts.A study by Sinclair and Yao (2011) showed that RI represents only a fraction of the total assets under management (AUM) in South Africa (TABLE 1).

TABLE 1: Estimates of professional sustainable investment assets under management in South
Africa on 31 December 2010 ($ billion) (a)   Total AUM ESGintegrated strategy (b)   % ESGintegrated / total AUM ESG-branded strategy (c)   % ESGbranded / total AUM Source: Sinclair and Yao (2011) Institutional investors in South Africa have also argued that RI was stifled by the lack of enabling legislation (Eccles et al. 2007, Herringer et al. 2009).This argument no longer holds water, as amendments were made to Regulation 28 of the Pension Funds Act (No 24 of 1956) in March 2011.The Act now explicitly states that prudent investing should take into account all factors that could materially affect an investment including factors of an ESG character.
Since very limited research has been conducted on the retail RI market in South Africa, this study set out to highlight a number of critical issues confronting responsible retail investors in South Africa.In the sections to follow, particular attention is given to the number of RI unit trusts available to retail investors in South Africa, the characteristics of these unit trusts and their risk-adjusted performance relative to their respective benchmarks and to a matched sample of conventional unit trusts.Retail funds refer to funds in which individual investors/unit holders can invest directly or indirectly and where the investment is held in the name of the individual investor (Association for Savings and Investment SA, 2011b).

LITERATURE REVIEW
Since the focus of this study is retail RI, the literature review will focus primarily on screening as the means through which private investors can invest ethically and responsibly.Pertinent findings on the risk-adjusted performance of RI funds and demand from the retail sector will also be highlighted.

Screening as RI strategy
Members of religious groups, such as the Quakers and Methodists, were the first investors to refrain from investing in the securities of companies producing 'undesirable' products or services, as well as those operating in 'undesirable' industries and countries (Schwartz, 2003).According to this approach, responsible investors typically avoid investments in businesses which are associated with alcohol, tobacco, weapons, gambling, pornography and nuclear energy (Sparkes & Cowton, 2004).Most exclusionary screens are faith-based.For example, Roman Catholics who are opposed to abortion and birth control have been known to exclude hospitals that offer abortion services as well as the manufacturers of abortifacients and birth control medication and devices (Whitten, 2004).Detailed investment guidelines and criteria regarding 'morally acceptable investments' are outlined on websites tailored to the needs of members of several denominations within the Christian faith (Christian Brothers Investment Services, 2012;Christian Financial Association, 2012;Crosswalk, 2012).
Similar websites exist for Jewish investors who wish to invest according to the tenets of their faith (Religious Action Centre for Reform Judaism, 2012) as well as sites for Islamic investors (Muslim Investor, 2012).Islamic investors primarily screen companies based on Shari'ah principles which are in accordance with Islamic law and generally exclude companies associated with alcohol, gambling, pornography, non-Halaal foodstuffs (such as pork), tobacco, firearms, weapons and entertainment.Shari'ah compliant funds also exclude financial institutions as the Qur'an expressly prohibits any association with the charging of interest or usury.In similar fashion, Shari'ah compliant funds also excluded companies with high levels of financial leverage (gearing), debtors and interest income.
Other (non-faith-based) responsible investors screen potential investments for highly specialised issues (e.g.uranium and genetically modified food) or cater for the concerns of specific groups such as human and animal rights activists (Whitten, 2004).Exclusionary screens (mainly for tobacco, alcohol, gambling, weapons and pornography) are used by 94% of RI funds in the United States, whereas 38% of RI funds in the Asia-Pacific Rim countries and Africa use Islamic screens (Renneboog, Ter Horst & Zhang, 2011).
In contrast, investors who employ a positive screening strategy invest in the securities of companies which they perceive to be good corporate citizens.An inclusionary screening strategy calls for the evaluation of corporate policies and practices on a wide range of ESG criteria.In South Africa these centre mainly on corporate governance, infrastructure development, employee relations, safety and worker rights, environmental management and water scarcity/sanitation (Eccles et al. 2007).A best-of-sector screening approach combines positive and negative screens.Consequently, responsible investors do not have to exclude entire sectors from their portfolios, but may include those companies across sectors that are making the most effort to improve ESG performance.

The financial performance of RI funds
Some of the earliest studies of RI fund performance entailed the construction of an RI fund and a comparison of its performance to that of a market index.Researchers such as Rudd (1979) and Grossman and Sharpe (1986) constructed 'South Africa free' portfolios in the 1980s to establish the cost associated with limiting an institutional investor's universe.They found a definite cost associated with reduced diversification.In similar vein, Kahn, Lekander and Leimkuhler (1997) created a 'tobacco free' portfolio by removing tobacco companies from the S&P500 index.In line with prior studies, the restricted portfolio underperformed the market index.Other researchers constructed their own positively screened RI funds by using the ESG criteria employed by KLD Research and Analytics or the Domini 400 Social Index (Abramson & Chung, 2000;Hutton, D'Antonio & Johnsen, 1998;Kempf & Osthoff, 2007).The performance of these self-constructed RI funds was then compared to market and unrestricted indices -the findings yielded mixed results.
The majority of academic studies however compared the performance of 'real' RI funds to conventional funds (often using a matched sample approach), RI indices (such as the Dow Jones Sustainability indices or the FTSE4GOOD indices), domestic market indices (such as the S&P500 or FT100) and global indices (such as the MSCI World indices).
With the exception of a few studies listed in TABLE 2, the risk-adjusted performance of RI funds was no different from that of conventional funds.
Researchers comparing the performance of RI indices to conventional indices initially only focused on RI indices in the USA (Luck & Pilotte, 1993;Kurtz & DiBartolomeo, 1996;Sauer, 1997), whereas more recent studies compared performance across several geographical regions (Vermeir, et al. 2005;Statman, 2006).Hussein and Omran (2005), for example, compared 50 Dow Jones Islamic indices vis-à-vis 50 conventional Dow Jones index counterparts.They found that Islamic indices yielded significantly better abnormal returns during bull markets, but did worse during bear markets (although this finding was not statistically significant).Schröder (2007) compared the performance of 29 RI indices across the globe to conventional indices and found that RI indices do not exhibit different levels of risk-adjusted return compared to conventional benchmarks.
In the earlier years of RI research, a technique that evaluated the financial impact of individual screens on financial performance was quite prominent.Diltz (1995) found that the market rewarded good environmental performance, charitable giving and the absence of nuclear and defence works, but penalised firms that provide family-related benefits such as parental leave, job sharing and dependent care assistance.Powell and Weaver (1995) likewise found that firms with strong environmental ratings had higher returns than those with poorer environmental ratings.In contrast, Barnett and Salomon (2006) established that the use of environmental and labour relations screens decreased financial performance, whereas community relations screens had the opposite effect.Statman and Glushkov's (2009) results are of particular interest for retail investors -they found that shunning certain investments resulted in a significant disadvantage compared to conventional investors who did not employ any screens.Based on this finding the authors suggested that responsible investors refrain from shunning 'sin stocks' and rather adopt a best-in-sector strategy when constructing their portfolios.

Demand for retail responsible investments
In one of the very few studies dealing with retail RI, Nilsson (2007:307) found that women and better educated investors are more likely to invest in RI funds and that pro-social attitudes play an important role in responsible investment behaviour.Individuals between the ages of 18 and 24, the so-called Generation Y, have been labelled 'the cause-seeking' generation as they constantly seek purpose and spiritual meaning in their lives (McCrindle, 2003:5) and factor environmental, social and human rights considerations into their consumption decisions (Bakewell & Mitchell, 2003:95;Cui, Trent, Sullivan & Matiru, 2003:310).
As indicated above, most managers of retail RI funds employ screening strategies when evaluating the moral acceptability of potential investments.Whereas initial studies suggested that screening imposes a financial cost, more recent studies, across geographic regions, found no significant difference between the risk-adjusted performance of RI funds and conventional funds.
Given that Generation Y is more discerning about the social and environmental impacts of their investments (compared to the current generation of retail investors), and the fact that they represent almost half of the South African population (Statistics South Africa, 2011), a growing demand for retail RI funds is anticipated.It was, therefore, felt that further insight into the current state of the retail RI market in South Africa would be a valuable contribution to the RI literature.

Data collection
The list of RI unit trusts published by Viviers et al. (2008) was updated to include RI unit trusts that were established up to 31 August 2011.As indicated in TABLE 3, 25 RI unit trusts were launched over the study period.Of these, three RI unit trusts were discontinued.Secondary data was collected on each RI unit trust's classification, date of establishment, date of discontinuance (where applicable), investment mandate, benchmark, assets under management and total expense ratio.
Given data constraints, risk-adjusted returns could only be calculated for 16 RI unit trusts.Discontinued unit trusts were included to avoid survivorship bias (Gilbert & Strugnell, 2010:31;Pawley, 2006:21).One conventional unit trust, based on fund classification and date of inception, was identified for each RI unit trust.Details of the RI unit trusts analysed are presented in TABLE 4. Monthly data on the net asset values (NAVs) of the RI unit trusts, their respective benchmarks, the comparable unit trusts and the risk-free rate (91-day Treasury bills) were downloaded from I-Net Bridge and Datastream.In a few cases data had to be sourced directly from RI unit trust managers.

Data analysis
Equation (1) was used to calculate the monthly returns of the RI and comparable unit trusts.The NAV prices sourced included cash distributions (re-invested on ex-dividend date), but excluded any initial charges.
where  = 1, 2, 3, … T;   = the monthly rate of return of unit trust i in period t; NAVprice  = the Net Asset Value (NAV) price of unit trust i in period t; and NAVprice −1 = the NAV price of unit trust i in period t-1.
The monthly returns of the RI unit trusts' benchmarks were calculated by replacing NAV price in Equation (1) with Index value.
In line with Viviers et al. (2008), a matched pairs design was used to make inferences about the differences between sample means.The Sharpe, Sortino and Upside-potential ratios for the RI unit trusts, their benchmarks and the comparable unit trusts were calculated.As indicated in Equation (2), the Sharpe ratio divides the average annualised differential return of unit trust i by its annualised standard deviation (Sharpe, 1994).For interpretative purposes, a higher Sharpe ratio is seen to be better.
where r̅  = the mean annualised rate of return of unit trust i during a specified time period; r̅  = the mean annualised rate of return of a risk-free asset during the same time period; and σ  = the annualised standard deviation of the rate of return of unit trust i during the specified time period.
Two alternative performance measures were also used.Through the use of the semi-variance or downside deviation (denoted by the Greek symbol delta, () as denominator in Equation (3), the Sortino ratio differentiates between 'good' and 'bad' volatility (Sortino & Price, 1994).
where r̅  = the average annualised rate of return of unit trust i during a specified time period; r̅  = the average annualised rate of return of a risk-free asset during the same time period; and δ  = the annualised downside deviation of the rate of return of unit trust i during the specified time period.
In order to calculate a unit trust's downside deviation, a threshold or minimum acceptable return (MAR) value needs to be set.In Equation (4), tau () represents the critical value below which investors would not like to see their investment returns fall.
where τ = the investor's threshold or MAR value and   = the return of unit trust i with a cumulative probability density function (. ) For the purpose of this research, the threshold or MAR value was set at zero as rational investors are averse towards negative returns.As in the case of the Sharpe ratio, investors prefer a high Sortino ratio.
The final performance measure used was the Upside-potential ratio (UPR) (Equation ( 5)).The upside potential of a unit trust (i.e.returns in excess of a specified threshold or MAR value) is divided by its downside deviation (Sortino, Van der Meer & Plantinga, 1999).
where   = unit trust i's upside-potential and   unit trust i's downside deviation.
Upside-potential () can be calculated by using Equation (6).For the purpose of this research, the MAR value was set at zero.As in the case of the Sharpe and Sortino ratios, a higher ratio is preferred.
where τ = the investor's threshold or MAR value and   = the return of unit trust i with a cumulative probability density function (. )  Differences of paired observations (between the RI unit trust and its benchmark; and the RI unit trust and its comparable unit trust) were calculated and sample means and standard deviations of the observed differences established.The Shapiro-Wilk test was then used to test the distributions for normality.A significance level of 0.05 was used.In cases where the 'difference' distribution was normally distributed, a single-sample t-test was conducted; otherwise a Wilcoxon matched pairs test was used to establish significance.Two sets of null hypotheses were tested.The first set compared the risk-adjusted performance of RI unit trusts to their respective benchmarks:  H 0,1.1 : there is no significant difference in the Sharpe ratios of RI unit trusts and their benchmarks over the period 1 June 1992 -31 August 2011. H 0,1.2 : There is no significant difference in the Sortino ratios of RI unit trusts and their benchmarks over the period 1 June 1992 -31 August 2011. H 0,1.3 : There is no significant difference in the Upside-potential ratios of RI unit trusts and their benchmarks over the period 1 June 1992 -31 August 2011.
The second set compared the risk-adjusted performance of RI unit trusts and a matched a sample of comparable unit trusts:  H 0,2.1 : There is no significant difference in the Sharpe ratios of RI unit trusts and a matched sample of comparable unit trusts over the period 1 June 1992 -31 August 2011. H 0,2.2 : There is no significant difference in the Sortino ratios of RI unit trusts and a matched sample of comparable unit trusts over the period 1 June 1992 -31 August 2011. H 0,2.3 : There is no significant difference in the Upside-potential ratios of RI unit trusts and a matched sample of comparable unit trusts over the period 1 June 1992 -31 August 2011.(Scholtens, 2005;2010;Ellison & Sayce, 2007;Derwall & Koedijk, 2009;Drut, 2010).

RI strategies employed
A breakdown of the RI strategies used by RI fund managers in South Africa is presented in TABLE 6.More details on the investment mandates of the 25 RI unit trusts analysed in this research are provided in Appendix A. The mandates were classified according to the guidelines of the European Sustainable Investment Forum (EuroSIF) (European SRI Study, 2010).
The majority of RI unit trusts in South Africa use exclusionary screens based on Shari'ah law.RI unit trusts that do not use ethical screens mainly focus on social criteria (such as labour relations and social development).In contrast to RI unit trusts, pooled and segregated RI funds employ impact investing and positive screening strategies.

Total expense ratios
The claim is often made that the total expense ratios of RI funds are higher than those of conventional funds (Bauer et al. 2005(Bauer et al. :1751;;Chegut, Shenk & Scholtens, 2011:77).Fund managers of RI funds, it is argued, need to spend more time on evaluating prospective investments as they use ethical and/or ESG screens alongside financial criteria.The average total expense ratio of the 16 active RI unit trusts analysed was 1.62% in August 2011, compared to 1.48% for the 16 conventional unit trusts, a statistically insignificant difference.(a) Refers to investments in a social and/or environmental purpose-driven company, organisation or enterprise that addresses a social and/or environmental cause by applying market-based strategies in sustainable business models that can deploy and provide both financial returns and social and/or environmental impact.(b) Refers to the use of negative screens to avoid investments in morally undesirable countries, industries and companies.(c) Refers to the selection of financial securities that meet a defined set of ESG criteria.(d) Also called shareholder activism.Refers to shareholders communicating with management boards on specific ESG issues.Investors can do so through dialogue, by filing resolutions, using their voting rights at annual general meetings and divesting from companies that fail to transform.This is a long-term process whereby investors seek to influence company behaviour related to their ethical and ESG practices.
Source: Empirical findings

Risk-adjusted performance
The findings relating to the first set of null hypotheses are shown in TABLE 7. The analysis only consisted of 14 RI unit trusts as data for the benchmarks of the Oasis Crescent International Feeder Fund and Oasis Crescent International Property Equity Feeder Fund could not be sourced.
Based on the Sharpe ratio, RI unit trusts underperformed their respective benchmarks, although the extent of underperformance was not statistically significant.
Based on the two more sophisticated risk-adjusted performance measures, the Sortino and Upside-potential ratios, RI unit trusts outperformed their benchmarks, but these differences were also not statistically significant.As a consequence, none of the three null hypotheses (H 0,1.1 , H 0,1.2 and H 0,1.3 ) could be rejected.
TABLE 8 compares the risk-adjusted performance of RI unit trusts with that of comparable unit trusts.
All three risk-adjusted performance measures shown in TABLE 8 indicate that RI unit trusts outperformed the matched sample of comparable unit trusts.In the case of the Sharpe and Upside-potential ratios, the findings were not statistically significant.Thus hypotheses H 0,2.1 and H 0,2.3 could not be rejected.In the case of the Sortino ratio, null hypothesis H 0,2.2 could, however, be rejected as RI unit trusts significantly outperformed the matched sample of comparable unit trusts.
These findings, which are in line with international research evidence (see TABLE 2), are encouraging for responsible retail investors in South Africa.

Fund performance and RI strategy
Given that the majority of active RI unit trusts are based on ethical screens that severely reduce the investment universe, closer investigation at the Islamic RI funds is warranted.
When evaluating the UPRs of ethically screened unit trusts over the entire research period (TABLE 9), the Kagiso Islamic Equityfund featured in the top performance quartile.The UPRs were also computed during four sub-periods.
The best performing RI unit trust in sub-period one (a period of lacklustre economic growth) was the ethically screened Old Mutual Albaraka Equity Fund.This fund was, however, one of the weakest performers in sub-period two, a period during which the economy showed slight improvement.The two best performing RI unit trusts in sub-period two both employed positive screening strategies.During the bull market which characterised sub-period three, the RI unit trusts managed by Element Investment Managers dominated the rest.None of these funds employed ethical screens.The Kagiso Islamic Equity Fund did very well in sub-period four, a period during which the market had to recover from the 2008/9 global financial crises.
Unfortunately no other ethically screened unit trusts featured in the top performance quartile in the bearish market in sub-period four (as suggested by the literature).

CONCLUSIONS AND RECOMMENDATIONS
This study set out to describe the retail RI market in South Africa.The findings reveal that a limited range of RI unit trusts are available to retail investors, especially those interested in responsible fixed income and property investments.Most RI unit trusts use exclusionary screens based on Shari'ah law, with the remainder screening potential investments and/or engaging with boards on social issues, such as labour relations and social development.
Although not statistically significant, the total expense ratios of RI unit trusts were found to be slightly higher than those of conventional funds.This finding, which is in line with international research, may reflect the additional efforts taken by RI fund managers to evaluate potential investments using ethical and/or ESG screens.

Source: Empirical findings
Through the use of the Sharpe, Sortino and Upside-potential ratios, the risk-adjusted performance of RI unit trusts was found to be no different from that of the unit trusts' benchmarks or a matched sample of conventional funds.Based on the Sortino ratio, RI unit trusts significantly outperformed conventional unit trusts over the research period.These findings bode well for responsible retail investors who wish to invest in line with their personal values.
Recent international research suggests that various ethical and ESG screening criteria impact on financial performance to different extents.This warrants closer investigation in South Africa.
Given a growing awareness among Generation Y of the impact their consumption (and, by extension, their investment) decisions are having, a growing demand for retail RI products in South Africa is anticipated.It is thus suggested that local assets managers seize the opportunity to expand the range of retail RI unit trusts available in the country.Specific attention could be given to:  the use of non-faith-based screens (as there are already quite a number of ethically screened RI unit trusts available).
 fixed income and property as asset classes.The latter recommendation is supported by Swart (2011), who argues that the responsible property investment market in South Africa is likely to see substantial growth in the next decade.
 positive and best-in-sector screening strategies.This recommendation is based on research illustrating that shunning certain investments could harm investment performance (Kahn et al. 1997;Statman & Glushkov, 2009).
 the use of more environmental screening criteria.The rationale behind this recommendation is that polluting companies are likely to face increased carbon taxes and fines in future given the South African government's commitment to reduce the country's environmental footprint (Moholola, 2011).

Details of R1 strategies pursued by Fund Managers of South African R1 Unit Trusts
Name of RI unit trust fund Relevant sections in investment mandate

Community Growth Gilt Fund
To support the reconstruction, development and empowerment of the South African labour force.The emphasis is on institutions and projects that contribute to the development of South Africa through programmes that have a meaningful social impact, and are committed to development, community participation and support.

Community Growth Equity Fund
To promote sustainable and responsible investing.The fund invests in JSElisted companies that are viable and sustainable, and have a clear commitment to job creation, skills development, affirmative action, sound environmental practices and effective corporate governance.The fund, established by trade unions, has become an influential enforcer of social responsibility in firms and attends AGMs of the companies it invests in.

Old Mutual Albaraka Equity Fund
To invest in accordance with Shari'ah law.The fund therefore does not invest in shares that have an association with alcohol, gambling, non-halaal foodstuffs or interest-bearing instruments.

Element Earth Equity Fund
To invest in a portfolio of JSE-listed equities and use its presence to promote an awareness of corporate responsibility performance measurements, including environmental management, social responsibility, economic empowerment and corporate governance.This is achieved through constructive engagement with management of the companies in which the fund invests.

Element Islamic Equity Fund
To provide Muslim investors, locally and in sub-Saharan Africa, with exposure to a portfolio of Shari'ah compliant South African equities.As such the fund is restricted from investing in companies involved in alcohol, tobacco, entertainment, gambling, non-Halaal foodstuffs, armaments and any interestbearing financial services including conventional banks and insurance companies.The fund also uses its presence to promote awareness of corporate responsibility and performance measurements, including environmental management, social responsibility, economic empowerment and corporate governance.This is achieved through constructive engagement with the management of the companies in which the fund is invested.

Kagiso Islamic Equity Fund
To provide steady capital growth and a total portfolio return that is better than the average domestic general equity fund.The generation of income is of secondary importance.The Fund will not invest in any interest-bearing instruments.The portfolio's main bank account is with ABSA bank, and will make use of ABSA's Islamic banking services which cater specifically to Shari'ah Fund compliance.The Fund is be managed in accordance with the guidelines and standards as set from time to time by the Accounting and Auditing Organization for Islamic Financial Institutions.

Sasfin Equity Fund
To invest in SRI listed equities.Investments will be limited to the shares of companies included in the FTSE/JSE SRI Index.Companies included in this index address each of the three pillars of the triple bottom line namely environment, society and economy and adhere to the principles of fairness, accountability, responsibility and transparency.

Oasis Crescent Equity Fund
To provide investors with the opportunity to invest in listed equities on both local and international stock exchanges within the ethical parameters of Shari'ah-governed investment.

Nedbank Sustainability Equity Fund
To track the performance of the Edward Nathan & Friedland Sustainability Index.This index weighted companies based on (1) their weighting in the FTSE/JSE Top 40 index and (2) their sustainability score reflecting their compliance with international best practices on sustainable development.The index and associated fund considered the social, environmental and economic consequences of investments thus taking cognisance of the triple-bottom-line approach to corporate measurement.

Sasfin TwentyTen Fund
To deliver consistent growth over the long term through investing in listed equities.The manager will focus on listed companies that will profit from South Africa's social and investment expenditure projects and benefit overall from the rest of the world's attraction to build a more successful and prosperous African continent.The portfolio will invest mainly in listed equity securities which will benefit from spending or financing of social and development expenditure such as infrastructure, building and construction, basic industries, transport, elimination of disease, health and similar developmental projects.

Sanlam Empowerment
Equity Fund To invest in shares that were directly or indirectly involved in the process of economic empowerment.The fund was geared towards individuals, groups and pension / provident funds wishing to utilise the potential growth of black empowered companies (black chips) and/or wishing to participate in BEE.

Oasis Crescent International Fund of Funds
To invest in selected securities that comply with ethical and moral considerations.In addition to Shari'ah prescriptions, the fund also avoids investments that are associated with high levels of gearing.

Oasis Crescent International Property Equity Feeder Fund
To provide income and to achieve medium to long term growth of capital from high-quality property and property related listed companies globally.This Shari'ah compliant Property Fund provides investors with the opportunity to invest in a product that conforms to moral and cultural beliefs.

Element Flexible Fund
To maximise total returns and align the investment objectives of the investor, the fund manager and the asset management company.The fund also uses its presence to promote awareness of corporate responsibility and performance measurements, including environmental management, social responsibility, economic empowerment and corporate governance.This is achieved through constructive engagement with the management of the companies in which the fund is invested.

Element Islamic Balanced Fund (A)
To provide investors with Shari'ah compliant returns and the opportunity to achieve long-term wealth creation within a moderate level of risk.The fund aims to preserve capital with a reasonable level of income that is halaal (permissible) for investors and will comply with the prudential investment requirements that govern the management of South African retirement.

Old Mutual Albaraka Balanced Fund
To offer investors an ethical investment that provides steady, long-term capital growth, as well as a moderate level of income via a portfolio that diversifies across asset classes and regional exposure.The Shari'ah Supervisory Board oversees adherence to the applicable Shari'ah principles.This fund specifically adheres to the standards of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) as interpreted by the Shari'ah Supervisory Board.

Four Shari'ah Balanced Fund of Funds
To deliver consistent and stable long-term investment performance and reduce the risk of investing in a single fund or asset class.The portfolio is a balanced fund that offers investors a single fund that combines both growth (equities) and income (through Sukuk, which are non-interest bearing Islamic bonds) objectives.By combining local and global equities (high risk) and Sukuk (low risk), they have been able to create a risk/return balance that provides capital appreciation, while avoiding excessive risk.

Oasis Crescent Balanced Progressive Fund of funds
To provide investors with an opportunity to hold a wide range of underlying asset classes within the ethical parameters of Shari'ah-governed investment.These underlying asset classes comprise: domestic and international listed equities, property, Islamic Bonds (Sukuks) and money market (for Pensions Fund Act regulatory compliance).As a Shari'ah compliant collective investment scheme, the Fund adheres to the ethical investment guidelines that Name of RI unit trust fund Relevant sections in investment mandate are prescribed by the Shari'ah Advisory Board.

Oasis Crescent Balanced High Equity Fund of Funds
To provide moderate capital appreciation; income will be incidental to the objective.The portfolio will be based on a selection of underlying investments that comply with moral and ethical considerations.To achieve this objective, the portfolio will be well diversified by asset class in accordance with prudential investment regulations.The Fund shall be a Shari'ah compliant fund.

Oasis Crescent Balanced Stable Fund of Funds
To provide moderate capital appreciation.The secondary objective is to provide moderate income growth based on a selection of underlying investments that comply with ethical and moral considerations.To achieve this objective, the portfolio will be well diversified by asset class in accordance with existing prudential investment regulations.The Fund shall be a Shari'ah compliant fund.

Element Real Income Fund
To achieve the highest sustainable income payout that is possible without eroding the fund's inflation adjusted capital base.The Fund uses its presence to promote awareness of corporate responsibility and performance measurements, including environmental management, social responsibility, economic empowerment and corporate governance.This is achieved through constructive engagement with the management of the companies in which the fund is invested.Source: Equinox (2011), FundsData (2011) and the fund factsheets of the respective unit trusts (2011) (a) Sub-period 1: 1 June 1992 -31 July 1998.Note: This sub-period is a slightly longer period than the others given that few RI unit trusts existed in this period.(b) Sub-period 2: 1 August 1998 -30 June 2002.(c) Sub-period 3: 1 July 2002 -30 September 2008.(d) Sub-period 4: 1 October 2008 -31 August 2011.
(a) A = Active; D = Discontinued (b) Classification based on the guidelines provided by EuroSIF(European SRI study 2010) The authors of this report preferred the term sustainable investment over RI and defined it as investments that integrate ESG factors into analysis, stock selection and active ownership practices in the belief that these factors can improve long-term risk management.(b) Defined as approaches that include ESG factors, but which may or may not brand themselves as 'sustainable', 'responsible', 'impact' or 'green'.(c) Defined as approaches that are explicitly ESG inclusive and marketed as such.
TABLE5provides an overview of the underlying assets in which RI funds in South Africa invest.The classification was based on the guidelines provided by the Association for Savings and Investments SA (2011b).Whereas non-unitised (pooled and segregated) RI funds invest mainly in private equity initiatives (alternative assets), no RI unit trusts currently invest in this asset class.TABLE 5 also reveals opportunities for asset managers to develop retail RI funds focusing on responsible fixed interest and property investments.Both of these assets classes have received more attention from responsible investors in recent years

TABLE 5 : Underlying assets of RI funds
Given the scope of this article, details on these funds are not included.These can be obtained from the authors.(b) Equity funds are required to invest at least 75% in equities at all times.The remaining 25% can be invested according to the discretion of the fund manager.(c) Asset allocation funds may invest in a spread of investments in the equity, capital, money and property markets.They generally hold a long-term view.(d) Alternative funds generally invest in private equity initiatives by means of equity (including preference shares), debt or a combination thereof.(e) Fixed interest funds invest in the bond and money markets.However, no money market funds were included in this database.(f) Property funds invest in real estate through different channels.

TABLE 9 : Upside-potential ratios of RI unit trusts over sub-periods
as the Act may allow from time to time, provided that the investments are done in accordance with the manner, limits and conditions as determined by the Registrar from time to time, as well as the Shari'ah Standards of the AAOIFI.No limits are specified with regard to a specific sector(s).The manager may invest in financial instruments in accordance with the manner, limits and conditions as determined by the Shari'ah Standards of the AAOIFI.