Practical analysis for investment professionals
22 May 2019

The Equality Equation: Three Reasons Why the Gender Investing Gap Is Closing

The gender investing gap is a hot — but commonly misunderstood — topic.

Here our focus is on the gap between men and women who invest in the stock market, whether through individual stocks, funds, or exchange-traded funds (ETFs). A greater percentage of men invest in equities than women. This represents the true retail gender investment gap. Since equities outperform all other asset classes over the long term, by not investing in these assets, women are at a disadvantage.

That’s the bad news. The good news is that women are narrowing this investment gap and will soon close it.

But before we explain why, we need to be clear about definitions. When it comes to women and men, there are five distinct financial gaps, of which only two constitute investment gaps. Many articles conflate all five, perhaps because it makes the situation look especially bad and draws attention to an important social problem. But while this may demonstrate how dire the situation is, it is not always helpful.

The Wage Gap: Working women around the world make less money than working men on average: In the United States and Canada, that’s 18.2% less as of 2017, according to the OECD. This gap exists for a variety of reasons and is slowly closing over time. Whatever the causes, it means that the average working woman has less money coming in to potentially invest with. But this is not, in and of itself, an investing gap.

The Wealth Gap: Since working women make less money than working men on average, they tend to have less wealth. In 2007, the median single US man aged 18–64 had wealth of $31,150, while his female counterpart had $15,120, or less than half as much. The gender wealth gap among non-retirees is over twice as large as the wage gap. That’s a lot less money for women to invest. But, once again, this is not, in and of itself, an investing gap.

The Retirement Needs Gap: Women live longer than men: In the United States, a 65-year-old woman must provide for herself for another 20.6 years on average, compared with 18 more years for a 65-year-old man. That’s 2.6 more years — and 2.8 years in Canada. In the United States, the average retired household spends more than $3,800 per month, so a 65-year-old woman needs to have earned, saved, and somehow increased her wealth by nearly $120,000 more than a comparable man to maintain her lifestyle. But, again, that’s not the investing gap we want to talk about.

The Retail Investing Gap: (Finally!) Historically, about 60% of US men invested in stocks compared with only 40% of women. According to a 2017 Gallup survey, this 20 percentage point gap has shrunk and is narrowing fast. From 2001 to 2008, 65% of men and 59% of women owned stocks. Following the global financial crisis (GFC), from 2009 to 2017, 56% of men and 52% of women were investing in equities. So the gap has narrowed to only four percentage points.

The Institutional Investing Gap: Funds and ETFs have predominantly been run by men: According to the most recent US data from Morningstar, fewer than 10% of money managers are women, compared with 37% of doctors, 33% of lawyers, and 63% of auditors and accountants. This gap has been a barrier to women investing, since at least some women prefer to work with other women.

Our prediction: By 2025, there will be no meaningful gender gap in stock market participation in the United States. Why do we believe this? For three principal reasons: The financial industry is shifting to products that women are more interested in; new technology is making it easier for women to invest; and the institutional investing gap will begin to close.

1. Sustainable Investing: Selling What Women Want to Buy

Based on Rich Thinking® global interviews, over three quarters of women prefer to invest in stocks and funds that reflect their core values. Although that research focused on “smart women,” these numbers and trends likely apply to all women: Morgan Stanley surveyed investors in 2015 and 2017 on this topic, asking “How interested are you in sustainable investing, which is the practice of making investments in companies or funds that aim to achieve market rate financial returns while pursuing positive social and/or environmental impact?”

In 2015, 78% of women said they were interested. Only two years later, that number had climbed to 84%. In 2015, 62% of men said they were interested. Two years later, that had risen to 67%. This “sustainability gap” skews the other way: Women lead men, with the difference growing from 15 to 17 percentage points from 2015 to 2017.

Women (and men) want to take action and do something about today’s issues — whether it’s gender equality, climate change, or something else — and investing is a powerful way to cast a vote.

According to a 2017 McKinsey study:

“More than one-quarter of assets under management globally are now being invested according to the premise that environmental, social, and governance (ESG) factors can materially affect a company’s performance and market value.”

“The scale of the sustainable investing market differs greatly from region to region. European asset managers have the highest proportion of sustainable investments (52.6 percent at the beginning of 2016), followed by Australia and New Zealand (50.6 percent) and Canada (37.8 percent). Sustainable investing is less prevalent in the United States (21.6 percent), Japan (3.4 percent), and Asian countries other than Japan (0.8 percent), but the gap is narrowing.”

Why, according to the report, are institutions moving more money to sustainability? ESG has been shown to enhance returns, strengthen risk management, and sync strategies up with the priorities of the various stakeholders.

Paula Glick and Liz Simmie are the founders of Honeytree Investment Management, an all-female startup money management firm based in Toronto. They talked about why they are passionate about moving the investment world forward:

“We started our firm because we spotted a gap in the marketplace. A lot of investment managers are struggling with how to address the demand for ESG products. It’s messy — it’s a very nuanced conversation. To date, the investing world has relied on fundamental data when picking stocks . . . a relatively narrow set of data — and the numbers don’t tell the whole story. What about leadership metrics? What about employee sentiment? How will a company minimize the risk of a scandal? Our investment process organizes qualitative and quantitative data, ESG and fundamental, open source data, and then we create a single coherent story out of all the data.

“Our goal is to improve investment returns by actively using ESG data in our investment approach. This isn’t about simply excluding ‘bad things’ — our model is focused on responsible bottom-line growth. We are not talking about value judgments; these are economic judgments. First and foremost, we are offering a core global equity strategy.”

In the past, equity products have had less appeal for women: They were too much about making money for making money’s sake. As the industry pivots to sustainable investment products, women (and millennials) will become more likely to invest.

2. Female-Friendly Technology Platforms

Women love to share. And technology — especially mobile technology — is helping them share and helping them invest.

From the 2017 report, “The American Angel,” on trends among US angel investors:

“Angel Investing is a ‘Team Sport’ — Angels Invest with Others and are Beginning to Also Use Online Platforms.”

“Angels . . . report identifying deals through friends and associates (52%), direct contact with entrepreneurs (58%), and online and crowdfunding platforms (17%). There is also a trend in the increase of angels investing alongside other funding vehicles, especially through crowdfunding platforms, with 16% of angels reporting the use of a digital platform for at least one investment.”

Technologies that accelerate our ability to understand women’s investment behaviors are of great interest today — to all financial institutions. As I pointed out in “Machine Learning: Changing the Game for Women in 2018”:

“We are seeing explosive growth in the number of social trading platforms and social media communities directed at women [and] female-focused machine learning, powered by new hardware and software, will be a key trend for 2018 and beyond. . . . Machine learning will make this information easier to access. Conducting the research on specific investment products will soon take minutes instead of days, and it will be as easy as ‘point and click’ to start investing in a cause.”

A 2018 yet-to-be-published research project by a global bank asked CEOs from across the world about the most important changes they were seeing in the investment industry.

A pension fund executive in Denmark exclaimed, “The democratization of the investment process!” She went on to elaborate:

“Investing will now be open to everyone. E.g. Danske Bank’s ‘June’ is a mobile offering that brings investing down to the level of the individual versus leaning on intermediaries. It is kind of like ‘drive thru investing.’ You simply mark out the areas that you would like to invest in and then click on ‘Go do’ — this is AI. What a great way of onboarding to the investing process — I bought this for my daughter as her birthday gift — I gave her a small amount to invest just to get her started.”

3. Global Sentiment Is Shifting and the Institutional Investing Gap Is About to Narrow

On the same day as Berkshire Hathaway’s annual conference in early May, Warren Buffett made a surprise appearance at the inaugural Variant Perspectives Conference. He offered his stamp of approval, saying that a conference about women investors — and how to correct investing’s gender imbalance — is “way overdue.”

Female-focused investment communities and forums are sprouting up everywhere. A prime example is Launch With GS — Goldman Sachs’s commitment to invest $500 million in women-led companies and investment managers. From their homepage:

“In our efforts to narrow the gender investing gap, we are also building a global network of business leaders to facilitate connections, share ideas, and uncover opportunities.”

From Starling Bank’s site in the United Kingdom:

“There’s a lot that women can do to reclaim the topic of money for themselves. For those who have never invested, a simple step could be to download an app such as Moneybox, Wealthify or WealthSimple and start with a £1. And just like that you’re ‘an investor.’”

Female angels are increasing in number. “The American Angel” study found that the number of women entering the angel investment market appears to be growing:

“Of angels who started investing within the last two years, 30% of these are women. Women are also changing the role of the angel investor, demonstrating different preferences and investment behavior from men.”

Impact investing is a space where many women get started investing. Bonnie Foley-Wong, CPA, CFA, the founder of Vancouver-based Pique Ventures, observed:

“When I launched Pique Ventures in 2012, it was still just a hunch, an idea. Integrated investing is about making mindful investment decisions for a better world. I wanted to make the investing ecosystem more diverse. I knew there was demand but I had to test whether it was real. Would women actually part with their money? We started with seven women investors (early adopters) and once we built the platform and started investing the capital people came out of the woodwork. Now I’m happy to say that this demand gets acted upon: 75% of the capital has come from women investors.”

As more and more women become institutional money managers across all asset classes, we expect female retail investors will be more willing to invest with women at the helm — especially since female fund managers may generate higher returns.

Watch for the interaction of these three trends. The equality equation is changing rapidly, and there are reasons for optimism. The investing gap will close much sooner than anticipated.

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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/lerbank


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About the Author(s)
Barbara Stewart, CFA

Barbara Stewart, CFA, is a researcher and author on the issue of women and finance. She released the ninth installment of her “Rich Thinking” series of monographs on International Women’s Day, 8 March 2019. Stewart uses her proprietary research skills to work as an Executive Interviewer on a project basis for global financial institutions seeking to gain a deeper understanding of their key stakeholders, both women and men. She is a frequent interview guest on TV, radio, and print, and she is a columnist for Golden Girl Finance. Stewart is on the Advisory Board for Kensington Capital Partners Limited in Toronto. All of Stewart’s research is available on Barbara Stewart.

Duncan Stewart, CFA

Duncan Stewart, CFA, was an active portfolio manager from 1993 to 2005, and is now director of technology, media, and telecommunications research for Deloitte Canada. In that role he has researched millennial attitudes to financial services and the gender gap for women in IT.

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