What to know about investing in companies that empower women

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As women in America struggle to equal pay and advance, companies that empower and nurture women workers are being rewarded by impact investors.

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

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Assets in US gender equity funds have doubled to $1.3 billion in the past three years, Morningstar noted in late February. However, according to the company, these funds account for less than 0.01% of total stock fund assets in the United States.

Fund focusing on gender equality

ticker Surname Fund Size ($) expense ratio YTD Total Return 3-year average annual total return
FWOZX Loyalty Advisor Women’s Leadership Z 131.202.145 0.69% 3.24% 19.83%
SHE SPDR MSCI USA 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 Women’s 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
even IQ Tightening Equality ETF 5,388,005 0.45% 0.37% N / A
WOMAN Impact Shares YWCA Women’s Empowered ETF 33,829,448 0.75% 3.49% 24.42%
FWOAX Fidelity Counselor Women’s Leadership A 131.202.145 1.10% 3.10% 19.34%

Source: Morning Star

But what exactly qualifies as gender investing, does it correlate to returns, and can it make a difference?

“Isolate that female 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 female CEO and CFO clients have seen tremendous results, she said.

Today she is Managing Partner of Hypatia Capital. In January, the asset management company launched the Hypatia Women CEO Exchange Traded Fund (WCEO). The fund invests in all publicly traded US companies with female CEOs, from small cap to mega cap. As of Thursday’s close, it is down about 1% from its debut on Jan. 9. It has an expense ratio of 0.85%.

The fund is in its early stages and has net assets of approximately $1.5 million. It is sector-weighted, which means that the fewer female CEOs in a given sector, the more shares the fund holds in companies that have female executives. One of its top holdings is Western Petroleumled by CEO Vicki Hollub, who called Lizarraga “a visionary”.

“Women are excelling as CEOs today because it’s so much harder for a woman to become a CEO,” Lizarraga said. “The woman who makes the CEO spot has to jump through more hoops. If you can isolate that ‘female factor’ there will be alpha.”

The top holdings of the Hypatia Women CEO ETF

ticker Surname % of Net Assets
OIS Oil States International 2.11
INSW International Sea Routes 2.08
OXY Western Petroleum 2.08
JXN Jackson Financial 1.22
PGR Progressive Corp. 1.21
LBC Luther Burbank Corp 1.21
GBX Greenbrier Cos 1.21
BXMT Blackstone Mortgage Trust 1.20
BEN Franklin Resources 1.20
EGBN Adler Bancorp 1.18
C Citigroup 1.18

Source: Hypathia Capital as of 03/01/2023

In fact, research shows that gender diversity increases a company’s financial performance. S&P 500 companies with more than 25% female executives have higher trailing one-year returns than those in the index, according to a study by Bank of America. The same is true for those that have more than a third of women on their boards, the firm found.

Additionally, companies in the top quartile of gender diversity on leadership teams were 25% more likely to achieve above-average profitability than their peers in the fourth quartile, according to a 2019 analysis by McKinsey & Company.

Pursuing the gender issue

But gender investing can be more than just investing in companies with female CEOs.

Funds can audit a certain percentage of women on boards and in senior positions, said Kenneth Lamont, a senior researcher at Morningstar. You can also look at the hiring, retention and promotion rates of women at a given company and gender pay gap data where available.

“Each vendor will give you a slightly different approach,” he said. “There is no absolutely correct approach to pursue the gender issue.”

Some providers use research by data provider Equileap, which focuses on gender equality, to help determine participation. The Amsterdam-based company researches and ranks 4,000 public companies around the world on 19 criteria, including gender balance in the workforce, pay gap, job training, hiring and women-friendly policies.

Women in leadership, but we need a more robust scorecard to assess gender equality.

Julia Fish

Vice President at Glenmede

One of those using Equileap data is Glenmede Investment Management, whose Women in Leadership US Equity Portfolio (GWILX) invests in large-cap companies with women in senior positions and biases towards companies that have stronger gender equality policies and practices. According to Morningstar, the company has about $21.4 million in assets under management and has an expense ratio of 0.85%.

“Women in leadership positions are important, but we need a more robust scorecard to assess gender equality,” said Julia Fish, Vice President of Glenmede Trust’s Sustainable and Impact Investing team.

Top Holdings of Glenmede Women in Leadership

ticker Surname % of Net Assets
MPC Marathon Petroleum 2.82
DGX Quest diagnostics 2.81
IPG Intergovernmental Group of Companies 2.78
SNPS Synopsys 2.62
BIB biogenic 2.53
MRK Merck & Co. 2.49
ULTA Ultimate beauty 2.45
DG General dynamics 2.38
BKNG posting balances 2.37
DBX Drop box 2.35

Source: Glenmede, as of 12/31/2022

Glenmede Investment Management analyzed Equileap data and found on an industry-neutral basis that companies in the top quintile of gender balance in leadership and workforces experienced higher average returns and lower risk than companies in the bottom quintile.

But these additional gender equality metrics are important. Those in the top quintile of other gender equity proxies — including equal pay, education and career development, access to benefits, and diverse supply chains — also experienced higher returns and lower risk than the bottom quintile, according to the company.

Make an impact

The people who manage these funds believe that the investments can make a difference.

“Also, what investors should look for is the presence of shareholder engagement within these public market strategies — that is, the ability of a public market investor to use their shares to solicit the company, in terms of environmental, social and… Governance functions, but particularly in relation to gender-related issues,” Fish said.

It’s something activist investors have done with some success. In 2018, Citigroup became the first major U.S. bank to agree to release statistically adjusted equal pay for equal jobs, after urging by Arjuna Capital’s Natasha Lamb. The result was an increase in compensation for women and minority workers to fill the gap.

For New York Life Investments, putting money into bridging the gender gap is part of its mission. The company’s IQ Engender Equality ETF (EQUL) donates a percentage of its management fee to Girls Who Code, a non-profit organization dedicated to increasing the number of women in computing. The fund is just over a year old, and as it grows its fortune, it’s also increasing its donations to the organization with additional contributions, said Wendy Wong, head of sustainable investment partnerships at New York Life Investments. EQUL has an expense ratio of 0.45%.

“They are trying to close the gender gap in technology. The pipeline is not growing as much as it should,” Wong said. “Not having a pipeline of women going into tech has really broad implications for everything.”

Don’t forget the basics

Those interested in investing in companies that nurture and empower women should be aware of what holdings are included in the fund and how companies are screened. Also, be aware of what fees are charged.

“A good story, or even a good moral story in some cases, shouldn’t blind you to the core 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 funds have tended to lag, he said. That’s because global funds are generally underweight technology, as these diverse companies tend not to do well, Lamont said.

“Depending on how the fund you’re looking at is built, it can really have pretty explicit biases or risk factors that you really should understand before you invest,” he said.

Finally, be aware that there may be more at play when it comes to return than gender diversity, he said.

“I would not deny any claims made about the performance benefits of having an additional female director on the board untrue,” said Lamont. “If you believe in that, that’s great. But be prepared for this not to be quite the way you might expect.”

– CNBC’s Michael Bloom contributed to the coverage