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As American women struggle to earn equal pay and move up the ladder, companies that empower and promote female workers are being rewarded by impact investors.

Known as the gender lens or gender equity investing, the idea is to invest for financial return, while promoting gender diversity. The theme is growing in popularity, though it still represents a small slice of the investment pie, according to Morningstar.

Assets in U.S. gender equity funds have doubled in the past three years to $1.3 billion at the end of February, Morningstar found. Yet these funds represent less than 0.01% of total equity fund assets in the United States, according to the firm.

Funds focused on gender equality

Teleprinter Name Fund size ($) Expense ratio Year-to-date total return Average annual total return over 3 years
FWOZX Female Leadership Loyalty Advisor Z 131 202 145 0.69% 3.24% 19.83%
SHE SPDR MSCI US Gender Diversity ETF 195 412 450 0.20% 2.09% 14.68%
FDWM Fidelity Women’s Leadership ETF 4,924,881 0.59% 3.37% N / A
PXWEX Impax Ellevate Global Woman Ldr Inv 805 158 928 0.76% 2.35% 14.44%
GWILX Glenmede Women in Leadership US Eq 21,070,997 0.85% 1.40% 19.70%
WCEO Hypatia Women CEO ETF 1,563,267 0.85% N / A N / A
EQUIL IQ Engender Equality ETFs 5,388,005 0.45% 0.37% N / A
WOMEN Impact Shares YWCA Women’s Empwrmt ETF 33,829,448 0.75% 3.49% 24.42%
FWOAX Loyalty Advisor Female Leadership A 131 202 145 1.10% 3.10% 19.34%

Source: the morning star

But what exactly qualifies as gender-lens investing, does it correlate to returns, and can it have an impact?

“Isolate this feminine factor, there will be alpha.”

Top Holdings of Hypatia Women CEO ETF

Teleprinter Name % of net assets
SELF International oil states 2.11
INSW International shipping lanes 2.08
OXY western oil 2.08
JXN Financial Jackson 1.22
RPG Progress Corp. 1.21
AML Luther Burbank Corporation 1.21
GBX Greenbrier Cos 1.21
BXMT Blackstone Mortgage Trust 1.20
Well Franklin Resources 1.20
EGBN Eagle Bancorp 1.18
VS Citigroup 1.18

Source: Hypathia Capital, as of 03/01/2023

Gender theme follow-up

Yet investing with a gender perspective can be more than just investing in women-led businesses.

Funds can select a percentage of women on the board and women in leadership positions, said Kenneth Lamont, principal researcher at Morningstar. They can also look at hiring, retention and promotion figures for women at a given company and data on the gender pay gap, if available.

“Each vendor is going to give you a slightly different approach,” he said. “There is no absolutely correct approach to following the gender theme.”

Some providers use research from data provider Equileap, which focuses on gender equality, to help determine holdings. The Amsterdam-based company studies and ranks 4,000 public companies around the world using 19 criteria, including gender balance in the workforce, as well as pay gaps, job training, recruitment and policies favorable to women.

Women in leadership are important, but we need a stronger scorecard to assess gender equity.

julia fish

Vice President at Glenmede

The main participations of Glenmede Women in Leadership

Teleprinter Name % of net assets
MPC Marathon Oil 2.82
DGX Quest Diagnosis 2.81
IPG Interpublic Group of Companies 2.78
SNPS Synopsis 2.62
IBIB biogenic 2.53
M.K.R. Merck & Co. 2.49
ULTA Ultimate Beauty 2.45
GD General dynamics 2.38
BKNG Reserve credits 2.37
DBX drop box 2.35

Source: Glenmede, as of 31/12/2022

Glenmede Investment Management analyzed data from Equileap and found on a sector-neutral basis, companies in the top quintile of gender balance in leadership and workforce experienced higher average performance and less risk than companies in the bottom quintile.

Yet these additional gender equity measures are important. Those in the top quintile of other gender equity indicators – including pay equity, training and career development, access to benefits, and diversity of supply chains – also experienced higher returns and lower risk than the bottom quintile, the firm found.

To have an impact

The people who manage these funds believe that investments can have an impact.

“What investors should also be looking for is the existence of shareholder engagement in these public market strategies – so the ability of a public market investor to use their shares to ask the company to go further on environmental, social and governance characteristics, but especially on gender-related issues,” Fish said.

This is something that activist investors have done, with some success. In 2018, Citigroup became the first major U.S. bank to agree to publish statistically adjusted equal pay for equal work after Arjuna Capital’s Natasha Lamb pushed for this. The result was an increase in pay for women and minority workers to close the gap.

For New York Life Investments, investing money to close the gender gap is part of its mission. The company’s IQ Engender Equality ETF (EQUL) donates a percentage of its management fees to Girls Who Code, a nonprofit that aims to increase the number of women in IT. The fund is just over a year old, so while growing its assets, it is also increasing its giving to the organization with additional contributions, said Wendy Wong, head of sustainable investing partnerships at New York Life Investments. EQUL has a spend rate of 0.45%.

“They’re trying to close the gender gap in tech. The pipeline isn’t growing as much as it should,” Wong said. “By not having a pipeline of women getting into tech, it has very broad implications on everything.”

Don’t forget the basics

Those interested in investing in companies that promote and empower women should know what holdings are in the fund and how companies are screened. Also, make sure you understand what fees are charged.

“A good story, or even a good moral story in some cases, shouldn’t blind you to the fundamentals of investing,” Morningstar’s Lamont said.

Be aware of any bias that may exist with the funds. For example, when tech stocks have performed well, gender equality funds have tended to lag, he said. That’s because global funds, in general, are underweight technology because those companies don’t tend to do well with diversity, Lamont said.

“Depending on how the fund you’re considering is constructed, it may have very explicit biases or risk factors that you should really understand before investing,” he said.

Finally, understand that more than just gender diversity may be at stake when it comes to returns, he said.

“I wouldn’t take all the claims that are made about the performance benefits of having an additional female director on the board as gospel,” Lamont said. “If you believe in it, that’s great. But be prepared that it doesn’t quite turn out the way you might expect.”

—CNBC’s Michael Bloom contributed reporting

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