Gender lens investing, which includes equity and fixed income portfolios, first developed from evidence of superior measurable performance by companies with higher women-in-leadership (WIL) metrics. Beginning with 2007 research by Catalyst1, studies have demonstrated that companies with stronger levels of WIL outperform on a range of financial and share price measures. (For a history of WIL research and an overview of gender lens equity funds, see here.)
Performance and composition of gender lens funds.
Shown here is the most recent performance of the primary publicly-traded gender lens equity funds available to individual investors. There are six global equity funds and twelve regional funds, listed here by AUM. Total AUM for the asset class was $1.37 billion as of June 30, 2019. Second-quarter performance was mixed. The global equity funds all delivered positive single-digit returns, with all but one outperforming their tracking indexes or benchmarks. Among the U.S., Canada, and North America funds, the Barclays Women in Leadership ETN posted the highest returns, performing broadly neutral with its benchmark and beating the 4.3% return of the S&P 500 Index for the quarter. The SPDR SSGA Gender Diversity Index ETF edged past its tracking index and the S&P 500. The Canada and U.K. funds both lagged their benchmarks. The two Japan funds were down slightly for the quarter, and both trailed their benchmarks.
How are WIL metrics faring year-to-date?
The last all-male board among S&P 500 companies recently added one female to its ranks, marking an important milestone2. However, although numerous studies have proved the performance benefits of stronger WIL metrics, progress at the C-suite and board levels remains stubbornly slow. At the close of the second quarter, women held only 5% of CEO positions within the S&P 500. Board seats held by women were at 21.2%, and executive level managers were at 26.5%, while women made up 44.7% of total employees.3
In the U.K., the 2020 target for one-third board representation within the FTSE 350 is seeing mixed results. The top 100 have met the goal, but the mid-cap 250 have not. Four companies have no women on their boards, and approximately 50 have only one.4
Slow progress is precarious, and even more so for women of color, who are still scarce at top leadership levels. The Catalyst study revealed that three board seats lead to notably higher returns. “One and done” does not secure the performance benefits.
Gender lens country allocations.
Table 1 shows the combined asset-weighted diversification by country for all these equity funds. Clearly the U.S. has an outsized weighting in this asset class. Canada is a distant second. North America and Europe dominate the top ten, which also includes Australia and Japan. Overall, there is a clear lack of emerging markets holdings, and non-Japan Asia is barely represented. What do these geographical allocations indicate? Are women achieving more leadership headway in North America and Europe within an environment of greater overall equality?
Interesting questions arise when comparing these country allocations to several leading global rankings of gender equality by country, presented in Table 2. Equal Measures 30 is a multilateral research provider of the data needed for governments to meets the UN Sustainable Development Goals (SDG) on gender equality. Current scores reveal that while most countries are earning a “poor” grade, higher income countries are performing better, but that no single country is the best performer across all goals.5 The World Economic Forum’s gender rankings, derived from surveys and statistics from leading multilateral organizations, uncovers some progress in education, health, and economic participation, but also warns of new gender gaps in high tech.6 The U.S. News Best Countries for Women list is a perception-based ranking derived from survey responses.7
There is an obvious disconnect between U.S. dominance in gender lens shares and its absence from the top placements in these rankings. Sweden and Finland are the only countries in the gender lens top ten and all three equality rankings. Canada, Germany, the Netherlands, and Australia land in two of the three equality lists. The U.S., the U.K., France, and Japan are not included in any of the country ranking top tens.
On one hand, how well are leading country equality scores reflecting the full picture? Perhaps there is a case for investability — the availability of gender lens equity, fixed income, venture capital, and other investments — to be included as a criteria. On the other hand, are gender lens equity funds capturing gender equality on a broad enough scale? Would WIL metrics increase faster in the U.S., the U.K., France, and Japan if they earned higher country scores?
1 Catalyst, The Bottom Line: Corporate Performance and Women’s Representation on Boards, Oct. 15, 2007
2 Wall Street Journal, The Last All-Male Board on the S&P 500 Is No Longer, July 24, 2019
3 Catalyst, Pyramid: Women in S&P 500 Companies, July 2019.
4 Financial Times, FTSE 250’s ‘one and done’ approach to women in boardroom attacked, June 30, 2019.
5 Equal Measures 30, Harnessing the Power of Data for Gender Equality, 2019
6 World Economic Forum, Global Gender Gap Report, 2018
7 U.S. News, Best Countries for Women, August 28, 2019
This article first appeared in Enterprising Investor (CFA Institute) on October 4, 2019.