Performance Attribution of the First Biblically-based SRI Index

Nov 8, 2018


A recent study by Shane Enete, CFA at the Biola University Inspire Research Institute For Biblically Responsible Investing (BRI), has shown that applying the Inspire Impact Score methodology to portfolio security selection generated alpha in a portfolio when compared to the broader, non-Inspire Impact Score screened benchmark. This finding adds new data to the debate of what effect values-based screening (Socially Responsible, Biblically Responsible, ESG, etc) has on the performance of a portfolio.

At Inspire we believe that good values and good returns are not mutually exclusive, and the findings from this study validate that belief. While screening a portfolio does not guarantee alpha generation, this study clearly shows that using the Inspire Impact Score methodology does have the potential to provide outperformance when compared to a non-screened benchmark.


For the purposes of this study, a traditional attribution analysis method was applied to the Inspire Small/Mid Cap Impact Equal Weight Index (”Index”) over a five year period. The study compared the contribution to overall returns from three variables:

1) Equal weight composition;
2) Sector bias; and,
3) Inspire Impact Score security selection methodology.

These three variables were then isolated and compared against the benchmark to determine the effect each individual variable had on overall performance.

“The results of the study found that the Inspire Impact Score methodology of security selection resulted in an annualized 4.7% outperformance compared to the non-screened benchmark.”

Performance data chart

Figure 1 – SP500

The remaining variables of sector weighting and equal weight composition had a negligible effect on the overall performance. (See Fig. 1) These findings pave the way for additional research into the underlying reasons as to why companies with higher Inspire Impact Scores provide the potential to outperform companies with lower Inspire Impact Scores, and the Biola University Inspire Research Institute for BRI is up to the task, but what is clear is that companies that are a blessing to their customers, communities, workplace and the world have the potential to outperform their peers and that investors who are seeking to create profit and impact do not necessarily need to resign themselves to substandard returns. Indeed, it is possible that they could experience above-average returns by including Inspire Impact Score screening in their investment strategy.

Performance Attribution of the First Biblically-based SRI Index

Shane Enete, CFA
Biola University

Working Draft


In the U.S., two of the most important investment trends over the last 10 years have been the rise of index investing and the rise of Sustainable, Responsible and Impact (SRI) investing. So, it would make sense that new indexes would emerge based on SRI principles. One such index is the new Inspire Small/Mid Cap Impact Equal Weight Index, which is the first biblically-based SRI index. This paper briefly discusses the methodology of this index and shows that its strong back-tested risk-adjusted returns (relative to its non-SRI S&P benchmark), are not due to sector bias (as one would expect), but are attributed to favorable stock selection within each industry sector. This index is likely the beginning of a wave of more sophisticated passive products that will meet the needs of niche investor populations better than the active products of the past.


In the U.S., two investment trends have been dramatic over the last 10 years:

  • the rise of index investing, and
  • the rise of Sustainable, Responsible and Impact (SRI) investing

As of 2016, flows from active to index funds have surpassed one trillion dollars and SRI Investing has achieved $9 trillion of assets under management (see Figures 1 and 2). So, it would make sense that these two trends would collide and new SRI indexes would emerge. One such index is the Inspire Small/Mid Cap Impact Equal Weight Index. This index has a unique faith-based construction that has performed well relative to its non-SRI S&P benchmark. This is likely the beginning of a new breed of indexes that will serve niche investors better than previous active products of the past.

Figure 1: Mauboussin, Michael, J., Dan Callahan, and Darius Majd, “Looking for the Easy Game,”Credit Suisse, 2017,
Figure 2: U.S. SIF Foundation


Unlike most existing SRI indexes2, this index focuses on small-to-medium companies, weighting its index constituents equally3. In addition, this is the first passive SRI product that explicitly ties the construction of its index to a biblically-based worldview, in particular, a reformed, non-denominational Christian worldview that emphasizes traditional Biblical views on all environmental, social and governance issues. Although applying a Christian worldview to active investing products has been done for more than 100 years4, this is the first passive index based on “Biblically Responsible Investing” (BRI) principles to be introduced to the financial markets. The Inspire index is constructed using an Impact Scoring methodology that essentially overweights companies that are aligned with biblical values and excludes companies that are not aligned with biblical values. Companies with a high Impact score may have one or more of the following characteristics:

  • inspiring primary business activity that uplifts society
  • positive environmental policies
  • support biblical values through philanthropy
  • operate with a perceived high level of integrity

Companies that have a low Impact Score would likely be involved in the enabling of certain types of activities that are contrary to what the Bible says will enable human flourishing, such as abortion, pornography, labor abuse, non-traditional family values, and gambling.

2For example: MSCI’s KLD 400 Social Index, FTSE’s 4Good Index Series, Calvert’s Social Index, Dow Jones’Sustainability Index
3Chow et al., (2011), found a significant improvement in returns when equally-weighting an index (versus marketcap weighting)
4During the late 1800s, the Quakers and the Methodists followed investment practices that prohibited investing in companies that were involved in slavery, smuggling and conspicuous consumption


i. Risk-adjusted Returns

Probably the biggest criticism of SRI investing is that  constructing a portfolio from a restricted universe of opportunities will impose too great a cost on the portfolio’s risk-adjusted returns, relative to their unrestrained counterparts. In other words, when trying to “do good,” there will be too heavy a cost on the portfolio.

When looking at the Inspire Small/Mid Cap Impact Equal Weight Index, early indications show a possible positive risk-adjusted performance benefit when using Inspire’s Impact Scoring methodology to construct their index. From 2012 to 2016, the Inspire index outperformed an equally weighted 50/50 blend of the S&P 400 and S&P 600 by over 4%, on an annualized basis, while maintaining a similar standard deviation.

This back tested performance result is not inconsistent with many academic studies over the years, which have shown that there is either a neutral or small benefit to risk-adjusted performance when adding different types of SRI criteria to the managing of an investment product.5

5Revelli, C. and Viviani, J.-L. (2015), Stone et al. [2002],

ii. Attribution

Another significant criticism of SRI investing is that sector bias is really what drives the performance. DiBartolomeo and Kurtz [1999] demonstrated that the positive outperformance of one of the oldest SRI indexes, the Domini 400 Social index, was largely due to economic and sector exposures that are the result of the screening process itself. It would make sense that certain sectors, like oil and gas, would naturally “screen themselves out” of most SRI indexes looking to protect the environment. So, given the possibility of sector biases embedded in SRI products, should it be assumed that any outperformance relative to a benchmark is simply due to large “sector bets” that happen to go in the favor of the SRI index? When conducting a performance attribution on the Inspire index relative to the S&P benchmark, there is no evidence that sector bets contributed to the outperformance.6

6Using the BHB model for attribution (Brinson, Hood, and Beebower, 1986). GICS sectors were used for the S&P benchmark; However, for the Inspire index, the sectors were first determined using The Industrial Classification Benchmark (ICB) sectors and then they were unofficially mapped to a GICS sector manually. An “Other” sector was used, which primarily represents the Real Estate sector, which was carved out of the S&P Financials sector during September of 2016. The small difference in alpha between tables 1 and 2 (4.4% vs. 4.2%) is due to rounding errors associated with the attribution methodology


Given the continued popularity of both passive index and SRI investing, new SRI indexes will likely proliferate during the next couple of years. The creation of the Inspire Small/Mid Cap Impact Equal Weight Index is the beginning of a wave of more sophisticated passive products that will better meet the needs of niche investor populations (e.g., faith-based investors) than the high-fee active products of the past.


[Bauer, Koedijk, and Otten, 2005] Bauer, Rob, Kees Koedijk, and Roger Otten (2005). “International Evidence on Ethical Mutual Fund Performance and Investment Style.” Journal of Banking and Finance , 29-7 (2005), pp. 1751-1767. (as cited in Milevsky et al., 2006).

[Brinson, Hood, and Beebower, 1986] Brinson, Gary P., L. Randolph Hood, and Gilbert L. Beebower. (1986). “Determinants of Portfolio Performance,” Financial Analysts Journal , vol. 42, no. 4 (July/August):39:44.

[Chow et al, 2011] Tzee-man Chow, Jason Hsu, Vitali Kalesnik, and Bryce Little (2011). “A Survey of Alternative Equity Index Strategies” FAJ, Volume 67,5, 2011

[DiBartolomeo and Kurtz, 1999] DiBartolomeo, Dan, and Lloyd Kurtz (1999). “Managing Risk Expo- sures of Socially Screened Portfolios.” Northfield Information Services. (as cited in Milevsky et al., 2006)

[Goldreyer, Ahmed, and Diltz, 1999] Goldreyer, Ahmed, and Diltz (1999). “The Performance of Socially Responsible Mutual Funds: Incorporating Sociopolitical Information in Portfolio Selection” Managerial Finance , 25-1 (1999), pp. 23-3. (as cited in Milevsky et al., 2006).

[Guerard, John B., Jr., 1997] Guerard, John B., Jr. (1997). “Is There a Cost to Being Socially Responsible in Investing?” TheJournal ofInvesting , 6-2 (1997), pp. 11-18. (as cited in Milevsky et al., 2006).

[Hamilton, Jo, and Statman, 1993] Hamilton, Sally, Hoje Jo, and Meir Statman (1993). “Doing Well While Doing Good? The Investment Performance of Socially Responsible Mutual Funds.” Financial Analysts Journal , 49(6) (1993), pp. 62-66

[Milevsky et al., 2006] Milevsky, Moshe, Andrew Aziz, Allen Goss, Jane (Thomson) Comeault and David Wheeler (2006). “Cleaning a Passive Index” Journal of Portfolio Management , Spring 2006:110-118.

[Revelli, C. and Viviani, J.-L., 2015] Revelli, C. and Viviani, J.-L. (2015). “Financial performance of socially responsible investing (SRI): what have we learned? A metaanalysis.” Business Ethics: A European Review , 24: 158:185. doi: 10.1111/beer.12076.

[Stone et. al, 2002] Stone, Bernell K., John B. Guerard, Jr., Mustafa N. Gultekin, and Greg Adams (2002). “Socially Responsible Investment Screening: Strong Evidence of No Significant Cost for Actively Managed Portfolios” Working paper, Marriott School of Finance, Brigham Young University, October 2002. (as cited in Milevsky et al., 2006).

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*Advisory Services are offered through CWM Advisors, LLC dba Inspire, a Registered Investment Adviser with the SEC. All expressions of opinion are subject to change. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their financial advisor prior to making any investment decision.

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