Ever heard of gender-lens investing?
Gender-lens investing is a term which is showing up more and more in the financial press, but what does it mean? It is an approach to investing which has as its main defining characteristic the backing of gender-diverse businesses — companies that include women in the founding team, leadership, management team or on the board — and businesses that offer products or services that specifically benefit women. This approach to investing is enjoying a moment, with impressive growth in the amount of capital invested in this way and the number of investment houses adopting this strategy to launch investment products (either fund managers picking stocks that meet their selection criteria or passive funds called ETFs).
The concept is not a new one. In fact, it has been around for a long time with the first fund launched in 1993 by a woman called Linda Pei. Her fund was the first to single out companies that are best-in-class in terms of hiring, promoting and generously compensating women. This pioneering woman sought to advance the social and economic status of women by investing in companies that promote gender equality in the workplace, but she also recognised the potential financial benefit to investing in this way:
Ms. Pei certainly seems to have been ahead of her time. Only now, following a huge body of research that affirms her thesis, is this investment style gaining traction. The research has pretty conclusively shown that businesses with more diverse management or boards have achieved better financial outcomes, as measured by any number of profitability metrics. So, while it took 25 years for the first $1 billion of capital to be invested in strategies that seek to harness this specifically, it took just one year for the second $1 billion.
Assets in gender-lens investing grew by 85% in the twelve months to June 2018, according to US Wealth manager Veris Wealth Partners. According to the Financial Times, there were twenty-seven new gender-lens funds launched in 2018, an increase from nineteen launches in 2017. Big financial institutions like UBS, Legal & General, Barclays and State Street have all launched funds or ETFs in this space. This development is of course part of a broader industry shift, as financial institutions realise that increasingly there is demand from clients to align investment decisions with personal values and that female investors in particular are interested in using their increasing wealth to contribute back to society.
The rapid growth of investment strategies available is certainly a very positive development, particularly as many of the recent product launches are very accessible low-cost passive funds which are easy to buy and sell. However, a proliferation of investment products means proliferation of choice so investors should be careful to do their research and consider how the fund is invested and how it fits in the context of their wider portfolio of investments.
According to reporting by the New York Times back in 1993 when Ms. Pei launched her fund, immediately after the list of top ten stocks in the fund were revealed the fund manager began to be inundated with phone calls from women who said they had been mistreated by some of those companies and a dedicated phone line had to be set up to manage the complaints. Somewhat similarly, I noticed looking down the top ten stocks in the Legal & General Future World Gender in Leadership UK Index Fund that it would be totally unsuitable for an investor who wants to limit exposure to certain “vice stocks” in the alcohol, tobacco and fossil fuel industries (Royal Dutch Shell – 7.7%, Diageo – 6.2%, BP – 3.8%, British American Tobacco – 2.5%, as at June 30th). That’s not to say these companies are not diverse inclusive businesses, but investors may have issue with them on separate grounds so should look beyond the name of the fund.
On the flipside, an investor who takes a proactive and engaged approach to building a responsible portfolio of sustainable businesses may actually find that their investments already score well in terms of gender equality and diversity without specifically purchasing a gender-lens fund. Have a closer look at your investments (or ask your investment manager to!) and see if anything stands out.
This guest blog post was written for the Female Investor Network by our Co-founder Mary Ann Hogan from Stanhope Capital