Socially Responsible Investing Strategy
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If you wanted to do something that is beneficial for both yourself and the world, socially responsible investing (or SRI) is one of your choices.
By adopting a socially responsible investment style we can all encourage corporate behavior that support environmental protection, consumer protection, human rights and more.
I have developed a simple rotation strategy that switches between 2 funds:
1. Domini social responsibility fund – DSEFX.
2. Vanguard Long-Term Treasury – VUSTX .
The switching is based on the momentum rank of each fund, 100% of the capital will be placed in the fund with the highest 1 month momentum rank.
In the 1st day of every month before the market opens, we will calculate the momentum of each fund by dividing the last month close price (last day of the month close price) by the close price of the first day of the last month. Then we will shift our capital to the fund with higher momentum. We will repeat this process in the beginning of every month. For maximizing results please notice that the switch from one asset to another should be done in the 1st day open, delaying the switch can harm the profits.
I back tested this strategy from January 1994 until october2013, the testing shows good results:
Annual return = 11.8% (relative to about &% of s&p500)
Max drawdown = -17.2% (relative to about -55% of s&p500).
Sharp ratio and other risk measures also shown better results then s&p500.
The strategy managed to navigate safely through two major bear markets: the 2000 dot-com bubble and the 2008 housing market crash.
During the 19 years of back-testing the strategy did 109 trades (switches) 52% of which were winners and 48% losers. The average winner was 6.2% and the average loser was -2.2% giving a nice profit factor of 3.1.
Some words about Domini social fund (from the fund’s website): The Fund invests primarily in stocks of U.S. companies that meet Domini Social Investments’ social and environmental standards. Domini evaluates the Fund’s current and potential investments against its social and environmental standards based on the businesses in which they engage, as well as on the quality of their relations with key stakeholders, including communities, customers, ecosystems, employees, investors, and suppliers.
Domini may determine that a security is eligible for investment even if a corporation’s profile reflects a mixture of positive and negative social and environmental characteristics.
Every one of us has the power to make our world a better place!
For more about SRI click here.
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