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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.”
Patricia Lizarraga first noticed what she calls “the female factor” about 15 years ago when she was working in investment banking. Her CEO and CFO clients were seeing great results, she said.
She is now managing partner of Hypatia Capital. In January, the asset management company launched the Hypatia Women CEO listed index fund (WCEO). The fund invests in all publicly traded US companies that have female CEOs, from small to mega caps. It is down about 1% from its debut on January 9, at Thursday’s close. It has a spend rate of 0.85%.
The fund is in its early stages and has approximately $1.5 million in net assets. It is sector-weighted, which means that the fewer female CEOs there are in a given sector, the more shares the fund holds in companies that have female CEOs. One of its main holdings is western oilled by CEO Vicki Hollub, whom Lizarraga called “a visionary.”
“Women today are more successful as CEOs because it’s so much harder for a woman to become a CEO,” Lizarraga said. “The woman who gets to CEO has to jump through more hoops. If you can isolate that ‘female 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
In fact, research shows that gender diversity improves a company’s financial performance. According to a study by Bank of America, companies in the S&P 500 with more than 25% of female executives have a higher one-year return on equity than the rest of those in the index. The same is true for those with more than a third of women on the board, the company found.
Additionally, companies in the top quartile of gender diversity on executive teams were 25% more likely to experience above-average profitability than peer companies in the fourth quartile, a 2019 analysis by McKinsey & Company find.
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
One of those using Equileap data is Glenmede Investment Management, whose Women in Leadership U.S. Equity Portfolio (GWILX) invests in large-cap companies where women hold important positions and moves toward those with stronger gender equality policies and practices. It has about $21.4 million in assets under management, according to Morningstar, and its expense ratio is 0.85%.
“Women in leadership are important, but we need a stronger dashboard to assess gender equity,” said Julia Fish, vice president of the sustainable investing team and impact of Glenmede Trust.
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