IDEAS home Printed from https://ideas.repec.org/a/spr/fininn/v11y2025i1d10.1186_s40854-025-00761-4.html
   My bibliography  Save this article

Importance of portfolio optimization in SRI and conventional pension funds

Author

Listed:
  • Mercedes Alda

    (University of Zaragoza)

Abstract

This study assesses the portfolio concentration of socially responsible investment (SRI) pension funds, which may be subject to a potentially limited asset universe and have a higher concentration and lower performance than conventional funds. Nonetheless, in contrast to previous studies on SRI funds, this study considers the information-advantage theory, positing that skilled managers should increase their concentration in assets in which they possess valuable information, departing from optimization models to achieve outperformance. This study first compares actual fund concentration with concentration obtained from several traditional and modern portfolio optimization techniques (minimum variance, global minimum variance, optimal portfolio, naïve diversification, risk parity, and reward-to-risk timing) to understand whether SRI pension funds concentrate portfolios and deviate from optimization model solutions. Unlike previous studies, the actual fund assets are considered in the optimization models to take into account the real investment profiles of SRI funds. The results indicate that SRI pension funds are less concentrated than conventional funds, and SRI and conventional pension funds largely diversify their portfolios, presenting lower concentration than portfolios formed with the optimization models. Furthermore, concentration strategies positively influence performance in SRI and conventional funds, revealing the use of information advantage. However, SRI and conventional fund managers present poor skills (picking, timing, and trading) to exploit information advantages due to overconfidence issues, which affect performance with concentration strategies. This situation may be modified if SRI funds follow modern optimization models and conventional funds follow traditional optimization models, improving managers’ performance and skills.

Suggested Citation

  • Mercedes Alda, 2025. "Importance of portfolio optimization in SRI and conventional pension funds," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-37, December.
  • Handle: RePEc:spr:fininn:v:11:y:2025:i:1:d:10.1186_s40854-025-00761-4
    DOI: 10.1186/s40854-025-00761-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1186/s40854-025-00761-4
    File Function: Abstract
    Download Restriction: no

    File URL: https://libkey.io/10.1186/s40854-025-00761-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:fininn:v:11:y:2025:i:1:d:10.1186_s40854-025-00761-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.