Don't bother trying to get your point across, he's clearly an idiot. Giving him a speech would not only make you part of the problem in his mind but would also make you a TRAITOR! He would be hurt deeply and resent you greatly as the cause of his pain.
The best thing to do would be to have an excuse when he wants to hang out and try and wean him off you... actually no, thats not the BEST thing to do.
The best thing to do, pay attention to this one... the best thing to do is maybe bait him into making more rude comments about your sister (say she fancies a black rapper on the telly or something)and them making a HUGE deal about him saying rude things about her, don't blow up on the spot but act cold to him till he asks you whats up... then tell him.
Make sure you emphasize the fact that he has disrespected your FAMILY that you and your sister are BLOOD. What will happen here is that you are telling him you cant be around him for reasons that HE understands (the far right loves the FAMILY and BLOOD) this will make him see your decision as valid and make him guilty... all you have to do now is stick to your guns "you cant unsay what you said man, i thought you were someone else" and he will not only leave you alone he'll feel bad when he sees you and perceive his pain as his own fault... alternatively if you want to mess with him you can accept him back if he does something for you... hehehe
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