Analysing the financial performance of sustainable development goals-themed mutual funds in China

More and more Chinese investors are investing in mutual funds linked to a specific United Nations sustainable development goal (UN-SDG) supporting themes such as good health and wellbeing (healthcare mutual funds), affordable and clean energy (renewable energy mutual funds), innovation (technology mutual funds), responsible consumption and production (ethical mutual funds), or life on land (natural resources mutual funds) with the aim to increase their wealth. Therefore, it is important to analyse the financial performance of SDG-themed mutual funds in China. This study is the first in examining whether Chinese mutual funds investing in a specific sector related to the UN-SDGs can beat the domestic-market index diversified across industries. High financial performance would attract more investors and allow firms to capture private financial resources to develop innovative projects that contribute to achieving the SDGs. To this end, this study analyses a sample of 111 Chinese SDG-themed equity mutual funds over the 2009-2019 period, applying several financial performance measures from Jensen's model, Fama and French's model, and Carhart's model. Furthermore, it compares the financial performance of different categories by implementing Student's t-parametric tests for the independent samples and the Mann-Whitney U non-parametric tests for the independent samples. The results indicate that the Carhart's model is superior in explaining mutual fund financial performance than the other two models. In general, SDG-themed mutual funds achieve a similar financial performance to that of the market benchmarks; and these results are robust to several asset pricing models. The results also show that the energy mutual funds significantly underperform the biotechnology, healthcare, agribusiness, technology, and ethical mutual funds in China. Contrastingly, the healthcare mutual funds are shown to outperform the energy, technology, and ethical mutual funds, while other categories exhibit similar financial performances. Furthermore, we find that SDG-themed mutual funds investing in the China geographical market perform like those investing in the global and the United States geographical markets. In conclusion, most SDG-themed mutual funds achieve risk-adjusted returns that are not significantly different from the market benchmarks. Therefore, those who invest in SDG-themed mutual funds could achieve good long-term financial performance while satisfying their non-financial preferences.