Socially responsible investment strategy
If you want to do something that is beneficial to both you and the world, socially responsible investing (or SRI) is one of your options.
By adopting a socially responsible investment style, we can all encourage business behavior that supports 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 change is based on the momentum range of each fund, 100% of the capital will be placed in the fund with the highest 1-month momentum range.
On the first day of each month before the market opens, we will calculate the momentum of each fund by dividing the closing price of the last month (closing price of the last day of the month) by the closing price of the first day of the last month. Then we will move our capital to the fund with greater momentum. We will repeat this process at the beginning of each month. To maximize results, keep in mind that the change from one asset to another should be done on the first day of opening, as delaying the change can hurt profits.
I tested this strategy from January 1994 to October 2013, tests show good results:
Annual return = 11.8% (relative to approximately &% of s & p500)
Maximum reduction = -17.2% (relative to approximately -55% of s & p500).
The Sharp index and other risk measures also performed better than the s & p500.
The strategy managed to safely navigate 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 made 109 trades (changes), of which 52% were winners and 48% lost. The average winner was 6.2% and the average loser was -2.2% giving a good profit factor of 3.1.
A few words about the Domini Social Fund (from the fund’s website): The fund invests primarily in stocks of US companies that meet the social and environmental standards of Domini Social Investments. Domini assesses the Fund’s current and potential investments based on its social and environmental standards based on the businesses in which they participate, as well as the quality of its relationships with key stakeholders, including communities, clients, ecosystems , employees, investors and suppliers.
Domini can determine that a security is eligible for investment even if a corporation’s profile reflects a mix of positive and negative social and environmental characteristics.
Each of us has the power to make our world a better place!
For more information on SRI, click here.