As we move through the second half of 2020, growth in corporate women-in-leadership (WIL) remains slow and uneven. The number of women CEOs in the Fortune 500 companies reached a new high of 37 this year, but that is still only 7.4% of the total. After the FTSE 350 companies briefly registered no all-male boards, two companies slipped back into all-male board status earlier this year.
Nonetheless, gender lens equity and fixed income investing continues to grow, founded on consistent evidence of superior financial performance by companies with stronger WIL levels. In an expanded coverage list, the 23 primary gender lens equity funds available to individual investors include nine global equity funds and 14 regional equity offerings. See second-quarter performance here.
Q2: Equity markets return to upward trajectory
Equity markets rebounded during the second quarter from previous sharp declines amid the global pandemic and economic downturn. Five of the nine global equity funds outperformed their benchmarks, one posted in line performance, and three trailed. Performance among the regional funds, which include U.S., Canada, Europe, and Japan funds, performance was mixed. For the U.S. funds, both the SPDR SSGA Gender Diversity Index ETF and the Impact Shares YWCA Women’s Empowerment ETF outperformed the S&P 500 Index, while the Glenmede Women in Leadership Fund was broadly in line. The Fidelity Women’s Leadership Fund passed the one-year mark and outperformed for the 12-month period.
AUM for these funds expanded to US$1.77 billion at the end of Q2. The PAX Ellevate Global Women’s Leadership Fund grew to US$540 million, while the UBS Global Gender Equality ETF ended the period at US$255 million, and the RobecoSAM Global Gender Equality Impact Equities Fund grew to US$186 million. Within the regional group, the SPDR™ SSGA Gender Diversity Index ETF closed the quarter at US$129 million, followed by the RBC Vision Women’s Leadership Canada Index ETF at US$108 million.
Keeping an Eye on Country and Sector Positioning
By definition, the WIL investment philosophy is rooted in a bottom-up stock selection process. How can these funds be allocated to most strongly capture corporate WIL performance benefits across countries and sectors? Neutral weighting is one option. Is there also a place for top-down allocations?
In looking at AUM-weighted country allocations for the group, U.S. shares remain dominant, followed by Canada, U.K., France, and Germany. How achievable is a more equally weighted portfolio? Country targets may be less feasible than neutral weighting, as market size is a factor. With a combined value of US$36 trillion for the NYSE™ and NASDAQ™, the U.S. has the largest equity market by far. China has the second largest at US$9.2 trillion, followed by Japan at US$5.7 trillion. The Scandinavian countries, which score very high on leading global gender equality rankings, have a total market of US$1.6 trillion.
AUM-weighted sector allocations remain tilted toward financial services and information technology, with health care, consumer discretionary, and consumer staples rounding out the top five GICS® sector allocations. For broader sector representation of WIL benefits, sector positioning targets may be worth incorporating.
Gender Lens Fixed Income: A growing market segment
In addition to equity funds, there is a growing array of public and private gender lens fixed income investment products. These include global, U.S., and emerging markets bond funds, global and Asia bond issues, development bank-backed bonds, and U.S. notes and certificates. The investment approach in the gender lens fixed income market ranges from capturing WIL benefits to supporting women-owned small and medium enterprises in developing economies. See the latest performance and other data for these fixed income investment vehicles here. Among these, development banks have laid the groundwork for gender lens investing in emerging markets. Interestingly, the development bank gender lens bonds tend to be oversubscribed, indicating strong market interest. Available AUM, including the development bank bonds, is approximately US$2.9 billion.
Pay Parity: Can Gender Lens Investing Lead To More Progress?
Pay equity boosts opportunities for women in higher corporate positions and therefore also belongs within a gender lens investment approach. The gender pay gap is a global dynamic and a significant hurdle behind the World Economic Forum’s 2019 statement that gender equality is 257 years away at the current pace. There is growing pressure on companies and countries to disclose gender and minority pay gaps. Median pay gap data, comparing all women and men who work full time, and adjusted pay gap data, measuring those performing the same jobs, is needed for a complete picture. A recent study of Denmark’s required pay reporting showed that disclosure reduced the pay gap and increased the number of women hired and promoted. Wage costs declined due to slower male wage growth, which spurred criticism, although all wages grew during the study period. A study of U.S. employers demonstrated that the gap closed for those firms practicing pay transparency.
Pay equity is tied in with an increased focus on diversity and inclusion (D&I), the rewards of which are beginning to be measured. Accenture’s 2020 research on the benefits of D&I, including equal pay and promotion, shows that the gap between management and employee perception of a culture of equality and inclusion hampers profits for U.S. companies by US$3.7 trillion.
Table 1 summarizes pay gap data for the top countries where gender lens equity funds are invested. Progress is uneven, particularly in Europe, where the EU has recently proposed uniform disclosure and enforcement requirements. The U.K. leads the way in required reporting, with employers of over 250 required to publicly disclose their median pay gaps. The Nordic countries, where required reporting has the longest history, have registered the smallest average gender pay gaps. Japan and the U.S. are among the worst performers, and neither requires reporting yet. The U.S., where public pay gap reporting regulations are currently under legal challenges, pay gaps for minority women are well behind the average.
One route for gender lens equity funds to capture the diversity benefits of any improvements in pay parity is to incorporate pay equality into investment universe criteria and scoring. Equileap, a leading provider of gender lens indexes, includes pay gap transparency in its company ranking tool. Six of the 23 equity funds use an Equileap tracking benchmark.
Through sustained pressure by shareholders, U.S. corporations are slowly beginning to disclose pay data, even in the face of stalled regulatory and legislative progress. In early 2019 Citigroup became the first U.S. major company to disclose both median and adjusted pay data by gender and minority for its global operations. Its median pay gap inched upward from a dismal 29% in 2018 to 27% in 2019, with its minority median pay gap improving from 7% to 6%. Among large corporations, only Starbucks and Mastercard have followed Citi’s lead in disclosure of median pay gap data. The best route for gender lens funds and investors to advocate for – and benefit from – pay equity is to play a strong role in shareholder engagement on the issue.