Because of the #MeToo movement, which arguably hit its stride in 2017, industries across the world have paid more attention to women’s issues. Among the many inequalities that have been pointed out is the lack of female representation in executive positions, which studies suggest could be costing companies in terms of performance.
To address this problem, some companies have turned to gender-lens investing, a sub-species of ESG investing that funnels capital toward companies with a demonstrable focus on encouraging women in leadership. The theory, as is the case for most ESG strategies, is that such companies would perform well based on certain financial and share price measures, leading to a positive payoff for investors.
To determine how well the theory translates into practice, Marypat Smucker, CFA, conducted a survey of equity funds with a women-in-leadership (WIL) focus that are available to individual investors. They included six global funds and 12 regional funds with US$1.37 billion in total AUM.
“These portfolios include mutual funds, exchange-traded funds (ETFs), SICAVs, one exchange-trade note (ETN), and one unit trust,” Smucker said in a report published by the CFA Institute.
Exposures and performance
With only a combined 30 top 10 holdings, she suggested that there is considerable overlap among the six global equity funds. Regional funds, particularly those with a country focus, offered more unique compositions. The funds focused on the U.S. reportedly shared just two top 10 holdings among themselves, and two with the global combined top 10 list. The two Japan funds, meanwhile, reportedly had just one top holding in common.
The Canada-only RBC Vision Women’s Leadership ETF, Smucker added, was one of three funds whose top 10 holdings had no overlap whatsoever with the global funds.
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The WIL funds were mixed in terms of second-quarter performance. The global equity funds all posted positive single-digit returns; just one failed to outperform its tracking index. Among the U.S., Canadian, and North American funds, the Barclays Women in Leadership ETN showed the highest returns, which were roughly in line with the product’s benchmark and ahead of the S&P 500’s 4.3% return for the quarter.
RBC’s Canadian WIL fund lagged its benchmark, just as another from the U.K. and the two Japan funds did for their own indexes. Meanwhile, the SPDR SSGA Gender Diversity Index ETF edged ahead of its tracking index and the S&P 500.
A narrow field
One variable that could be holding gender-lens investing back is slow progress at the C-suite and board levels. Citing Catalyst data, Smucker said that at the close of the second quarter, only 5% of CEO positions and 21.2% of board seats within the S&P 500 were occupied by women.
The picture in Canada is even worse, based on figures released by the Canadian Securities Administrators (CSA) last week. Among TSX-listed companies, just 4% had a female CEO, and women accounted for just 17% of board seats.
“When at least three board seats are held by women, research shows that returns are notably higher,” Smucker said, suggesting that having just one or two perfunctory female appointments will not secure the full benefits of gender diversity in leadership.
But there is hope for the future. A greater number of companies are expressing their commitment to put more women in power. “As WIL metrics increase, the universe of investable companies for gender lens funds will expand,” Smucker said.
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