Is there a distortion in gender-lens investing?
Deep dive into funds that focus on women in leadership reveals curious choice for sector leader
The responsible-investing universe has expanded tremendously, with both demand from investors and assets placed in ESG strategies accelerating significantly in recent years. One issue that has gained attention through this movement is gender inequality, with advocates asserting that companies with higher scores on women in leadership (WIL) outperform their counterparts on various financial and share price criteria.
But according to Marypat Smucker of Parallelle Finance, the strategies that focus on WIL may be seriously missing the mark. In a blog post published by the CFA Institute, she noted that gender-lens equity funds available to individual investors in the public space include mutual funds, ETFs, SICAVs, one exchange-traded note, and one unit trust.
"Divided into 6 global equity funds and 13 regional funds, these funds as a group totaled $1.49 billion [U.S.] in assets under management (AUM) as of 30 September 2019," Smucker said, noting that the U.S., Canada, and the U.K. led the way in terms of country allocation.
Examining the gender-lens investing (GLI) universe based on AUM-weighted sector distributions, she said that the top allocations went to financial services (18.34%), followed by information technology (15.01%), consumer staples (10.9%), and consumer discretionary (9.81%).
"The available data on the top 10 holdings for these funds indicates information technology and financial services are the top holdings, with distributions of 10% and 9%, respectively," Smucker said.
Looking at the financial firms that are present in the top 10 holdings across the whole group of funds, she said there are nine banks, three insurance companies, and one asset management firm. That list included five Canadian firms: Bank of Montreal, Bank of Nova Scotia, Royal Bank of Canada, Toronto-Dominion Bank, and Brookfield Asset Management.
While no single sector has taken leadership with respect to WIL, pay parity, or other measures of women's progress in the workplace, financial services are "a curious sector leader" for inclusion in GLI funds, Smucker said. Even though women represent approximately half of all financial-services employees in the U.S. and other developed economies, they accounted for just 18% of executive committees in the top 20 global firms in 2018. Swiss financial institutions are far behind the pack, as only three out of 50 such institutions are reported to have female CEOs.
"Among S&P 500 companies as a whole, women make up 26.5% of executive and senior-level positions," Smucker said.
In the U.S., women and men start out on equal numbers at the lower rungs of the financial-services ladder, but by the time they get to the C-suite, women end up holding a smaller percentage of positions than the already-low average for all industries. The erosion that happens with each step up is particular acute for women of colour, Smucker added.
"Moreover, financial services has the broadest wage gap in the United States," she added, noting that women earn only 63 cents for every dollar that men make.
Gender lens sector and top holdings data point to emerging WIL progress among banks and insurers. While the trend could indicate a mismatch, it could also be due to emerging leadership in banking and insurance.