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‘Gender-lens’ traders direct their cash to women-led corporations

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It’s a small but growing focus in the environmental, social, and governance investment movement: gender equality.

The so-called gender lens investment prioritizes companies with a higher proportion of women on their executive boards and in management positions, as well as those that do well in terms of equal pay and other workplace guidelines that particularly support women, such as generous paid vacation plans.

“We’re seeing more and more investors, especially women, looking to add a gender lens to their portfolios,” said Kathleen McQuiggan, financial advisor at Artemis in Boston.

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About $ 3.6 billion will be invested in the more than two dozen mutual funds, exchange traded funds, and other equity products that pursue this strategy, according to Parallelle Finance, a gender lens research and advisory firm. According to Morningstar, that amount is only a fraction of the $ 330 billion that has been invested in the broader category of ESG investing in the US.

Still, the amount that goes into these funds has grown steadily over the past five years due to increased investor interest. The #MeToo movement and high-profile sexual harassment cases have contributed to increased interest in supporting companies with greater representation of women or with policies promoting gender equality.

Some gender-biased funds have performed well this year while others have lagged. For example, the S&P 500 Index returned 24% through October, compared with 17.6% for the Pax Ellevate Global Women’s Leadership Fund, according to Morningstar Direct.

To say that something is gender biased doesn’t mean it doesn’t use investment criteria.

Jon Hale

Director of ESG Strategy at Morningstar

Still, “there is no reason to believe that you will underperform,” said Jon Hale, director of ESG strategy at Morningstar. “Saying something is gender-focused doesn’t mean it doesn’t use investment criteria.”

Additionally, greater gender diversity in a company is related to higher stock price performance, improved risk management and lower fraud rates, said Angela Atherton, director of operations and strategy at Parallelle Finance.

“Personally, I believe the funds will outperform in the long run,” said McQuiggan, describing more women in the corporate workforce as “the secret ingredient of why you want this fund instead of this one.”

According to Parallelle Finance, eleven new gender lens funds have appeared since 2018, four of which only last year.

Another sign of the strategy’s growth, the assets under management of the Pax Ellevate Global Women’s Leadership Fund – a pioneer in the field since 1993 – have doubled in the past 20 months from $ 500 million to nearly $ 1 billion .

The fund, which requires a minimum investment of $ 1,000 and has an expense ratio of 0.78%, tracks approximately 400 companies, among other things, through their representation of women on their boards and their transparency on gender diversity data. For example, more than a third of the companies in the fund have female CEOs, compared to 17% of the companies in the MSCI World Index.

Beyond the bottom line, there may also be an element of advocacy for these gender strategies.

“The ramifications we’re trying to address are cultural challenges that make it difficult for underrepresented populations to succeed in their organizations,” said Nicole Connolly, portfolio manager for the Fidelity Women’s Leadership Fund, which according to companies with at least a third of their board seats are women occupied.

Women now hold only a third of the S&P 500 board seats, and only 6% of the companies in the index are led by women.

The urge for gender equality

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At investment manager Nia Impact Capital, the pursuit of gender equality is an ongoing pursuit.

The company’s $ 470 million Global Solutions Equity portfolio consists of 50 companies that not only have women in leadership roles, but also provide products and services that are beneficial to women and girls (e.g., breast cancer research) .

Nia coordinates and holds discussions with companies specifically on diversity, inclusion and gender issues and shares best practices regarding fair pay, diversity and recruiting techniques.

“We are actively committed to every company and bring our voice as investors as law and responsibility as far as the world needs,” said Kristin Hull, CEO and founder of Nia.

Personally, I believe the funds will outperform over the long term.

Kathleen McQuiggan

Artemis financial advisor

The portfolio has a minimum investment of $ 100,000 and is available as a separately managed account through trading platforms like Fidelity Investments or Charles Schwab, Hull said. The cost ranges from 0.7% to 1.5% of assets under management, depending on where the account is held and how much money you’ve invested.

Ultimately, there is little that investors can do to improve the representation of women across American companies, experts warn. They say laws and regulations are needed too.

There has been movement recently on these fronts as well.

In August, the Securities and Exchange Commission approved the Nasdaq rule for newly listed companies, which requires most companies to have at least two different directors or to explain why they don’t. The exchange operator found that more than three quarters of its currently listed companies do not meet this standard.

A dozen states have now passed or are on the way to increasing diversity on their boards.

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