Gender Lens Equity Funds: The First Major Test
Amid the unfolding global pandemic and economic downturn, equities plunged during the first quarter. The S&P 500 Index returned -19.6% and the MSCI World Index posted three-month returns of -21.05%, as developed and emerging markets indexes were all down steeply.
Among gender lens indexes, the MSCI World Women’s Leadership Index declined 25.63%, and the MSCI USA Women’s Leadership Index fell 24.96%. The Solactive Equileap Global Gender Equality 100 Leadership Index returned -23.90%. The Bloomberg Gender Equality Index, which announced a 2020 expansion from 230 to 325 companies in 42 countries, posted a decline of over 30%.
How did gender lens funds fare in the first quarter?
The latest quarterly performance of the primary gender lens funds available to individual investors is available on the Parallelle Finance website. These are divided into global and regional equity and listed by assets under management (AUM). The gender lens investment philosophy is rooted in the proven corporate benefits of higher levels of women in leadership (WIL). As all but one of these funds were launched after the global financial crisis (GFC), the current downturn presents their first significant market test, no matter the shape of the subsequent recovery. Reported AUM for this group of 18 funds declined from US$1.47 billion to US$1.35 billion during the first quarter.
Among the global equity funds, five performed broadly in line with their benchmarks, while the RobeccoSAM Global Gender Equality Fund outperformed its benchmark for the quarter. Four funds tracked or outpaced the MSCI ACWI Index. The Valeurs Feminines Global Fund was relaunched in late 2019, expanding from a Europe-focused fund to a global equity offering. It trailed its ACWI benchmark for the quarter. All of the global funds came in ahead of the MSCI World Women’s Index, which none use as an official benchmark.
In the regional group, two of the three US funds underperformed the Russell 1000 Index and broader S&P 500 Index, while the Impact Shares YWCA Women’s Empowerment exchange-traded fund (ETF) outperformed both. The RBC Vision Women’s Leadership Canada ETF trailed its tracking index, but turned in the strongest return in both the global and regional groups, declining only 4.7%. The UK fund slightly trailed its tracking index. All three Japan funds outpaced the MSCI ACWI ex-USA Index, and the two Japan ETFs also outperformed most funds in both groups. The North America funds were mixed, with the BMO fund down modestly, while the Evolve ETF declined sharply.
How can gender lens investing help lead the recovery?
As the unique pandemic-driven economic downturn has set in, many have issued calls for the gender lens philosophy to take a front seat in the recovery. A range of research reports quickly narrowed in on several current themes impacting women in the global economy. What role can gender lens equity investing play in addressing these?
The Global Care Economy
The first key theme is the global care economy. This term describes the $10.8 trillion in unpaid labor that is performed mostly by women and which is a major factor keeping them out of the labor force in many areas. Gender lens investment portfolios are suited to invest in those companies and countries addressing this significant drag on global GDP, however, they are not always allocated accordingly.
The investment criteria for gender lens funds tend to include an environmental, social, and governance (ESG) screen, thereby encompassing the “S” of company-level support for employees who also work in the unpaid care economy. But the AUM-weighted country allocations of these funds warrant attention. Over the past four quarters, the United States is consistently the highest country weighting, yet it does not rank among the leading nations in gender equality, the criteria for which includes labor market participation and care economy policies. The Nordic countries score high in the country equality rankings, and 14 Nordic holdings are included in the latest top 100 companies list by Equileap, a leader in gender lens equity indexes. But these countries have low AUM-weighted allocations within total gender lens funds. While US funds account for 10% of total AUM for the asset class, the total AUM-weighted US allocation is over 56%. The broad global MSCI ACWI Index is 58% weighted in US stocks. But the gender lens asset class, particularly the global equity group, has an opportunity to capture more evenly the WIL benefits in a broad range of countries and equity markets.
Essential Work
Another widely-discussed theme is the predominance of women in low-paying essential positions. In the United States, nonwhite women are the most likely to fill the jobs deemed essential under federal guidelines. Women fill over half of all roles, including 53% of critical retail positions and over 75% of essential health care and social work jobs. Are gender lens funds investing in the GICS industries with relatively high concentrations of low-paying essential jobs?
AUM-weighted sector allocations of gender lens funds indicate a modest shift into health care during the quarter, from 10.8% to 12.1%, while the top two sectors remained financials and information technology. The available data on top 10 holdings indicate where these funds are invested within industries with high levels of low-wage essential work. Among top health care holdings for both the global and regional funds, there are a combined 11 pharmaceutical and biotech firms, but only six companies in the providers and services industry. Within top consumer staples holdings, there are no food and staples retailers. In consumer discretionary, top holdings include one restaurant and three retailers. Notably, there is only one publicly-traded day care provider in the United States, Bright Horizons Family Solutions, which does not appear among the gender lens top holdings.
Pay Equity
A related recovery theme — pay parity — is an obvious next-focus area for gender lens equity to expand its investment philosophy. The drive for more transparency among companies on compensation should highlight pay data at all corporate levels, particularly among the lower-wage workers who pulled developed and emerging economies through the first months of this pandemic.
Gender lens investment vehicles are uniquely positioned to answer the call for a gender-balanced recovery and to benefit investors. Allocations in companies and industries where women are on the front lines of essential work bear watching, and these funds would do well to increase allocations to those countries with higher scores on addressing the care economy. Equally weighting the gender lens ETFs would more evenly capture the financial benefits of the gender lens philosophy across holdings, sectors, and countries.
For more analysis from Marypat Smucker, CFA, visit Parallelle Finance.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
Image credit: ©Getty Images / Westend61
There might be inconsistencies within the article that perhaps need explanation and further reference.
In the third paragraph it is stated that “the gender lens investment philosophy is rooted in the proven corporate benefits of higher levels of women in leadership”. Nevertheless, in the very first two paragraphs, the underperformance of gender lens indexes compared to the S&P500 or the MSCI World index in the first quarter is precisely quantified. In particular, MSCI World Women’s Leadership Index posted -25.63% while MSCI World Index declined by a lower amount (-21.05%). This is bound to not go unnoticed by the eyes of a careful reader.
When retrieving a larger picture of the historical performance comparison of the indexes, one can in fact easily find that the MSCI Women’s Leadership has systematically underperformed its benchmark: https://www.msci.com/documents/10199/ee63066d-7b32-468a-8b3a-88560185f209. Visually, it appears as if the Women MSCI were experiencing a contango effect. Bringing the argument to the extreme, one could actually make a case for profiting from an arbitrage trading strategy which holds a short position on the Women MSCI and a long position on the MSCI World.
Under this light, the author’s statement mentioned above appears to be puzzling. One should define what exactly the corporate benefits of having higher levels of women in leadership are. Furthermore, one must keep in mind the existing discordance between the findings put forward by academic and non-academic papers. Basing one’s conclusion on the latter exposes to the risk of constructing a theory on pre-selected data tested on insufficiently large time frames. Especially in recent time, most private company research on the topic has shown to be polluted by political bias. Academic research is on average more rigorous and the findings are repeatedly and independently re-tested over wide time frames. A very good summary of the problems of considering private companies research on the topic of gender diversity on board was made by Katherine Klein: https://knowledge.wharton.upenn.edu/article/will-gender-diversity-boards-really-boost-company-performance/
In my eyes though, the biggest problem is represented by the huge amount of academic research which actually finds a negative correlation between bio-demographic diversity (as for example gender) and performance. This is because no single one study, especially if conducted in a non-peer reviewed frame can disprove that. See for example: https://www.researchgate.net/publication/228389271_The_Effects_of_Team_Diversity_on_Team_Outcomes_A_Meta-Analytic_Review_of_Team_Demography.