Gender lens investments : are gender and  financial performance related?

The financial world is increasingly attentive to the theme of gender diversity and, in recent years, has seen the spread of many mutual funds and exchange traded funds that allow investors to encourage companies that have women in leadership roles or are engaged in their advancement or to promote gender equality.

The strategy of Gender Lens Investing, brought to Italy by Opes Italia SICAF EuVECA S.p.A., the most recent impact funds, is not limited only to favoring, in investments, companies with women in a prominent position but puts under the lens the entire supply chain and assesses whether all stages can incorporate the needs and the expectations of women.

Investing with a gender-sensitive approach «is not equivalent to investing in companies that have many women in the board», explains Elena Casolari, president of the Opes Foundation. It is the entire chain of product or service that must be considered: “If I want to build an openly inclusive gym, with special schedules, attentive to people with disabilities and then the park hasn’t adequate lighting, I didn’t really think about women. That’s what we see. If the gym does not have a parking suitable for women, women will not go there and therefore there will be fewer customers. This is against my interest of investor. “

“Gender Lens” funds are trying to thrive in a landscape certainly not easy: the pandemic has exacerbated gender inequality around the world and women have been disproportionately affected by job losses.

Additionally, a Women in Finance Climate Action Group report notes the effect that climate change will have on women all over the world; for example, 80% of people displaced by climate change are women and at COP26 only 27% of the heads and vice-heads of delegation were women.

The urgency of the problem has been acknowledged by investors: gender-oriented finance is becoming one of the fastest growing sustainable investment areas.

Morningstar says that up to $ 2 billion more this year has flowed into a group of 52 funds seeking to have a measurable impact on gender and diversity inequalities.

The most complete database on this category of funds was created by Parallelle Finance, a consultancy firm on the gender objective, which, after monitoring 29 equity funds for gender objectives, states that the assets under management grew 21% in the first quarter of 2021 compared to last year, reaching $ 3.55 billion between March and August.

Among the notable funds, the Fidelity Women’s Leadership Fund (FWOMX) invests in companies that have a woman as a member of the senior management team, are governed by a board where women represent at least one third of all directors or have policies aimed at attracting and retaining female workers; it grew by 20.74% from the beginning of the year to October.

Barclays Women in Leadership Total Return Index (WIL) invests in companies that have a female CEO or a board of directors composed of at least 25% women, and it has increased by 22.91%. The S&P 500, in comparison, was up 22.6% over the same period.

Bloomberg also has an index dedicated to gender equality, the “Gei”, (Gender Equality Index), which monitors 380 listed companies that meet certain criteria and have a score above a global threshold established in five dimensions: female leadership and talent pipeline, equal pay, inclusive culture, anti-sexual harassment policies and pro-women branding.

However, while investment flows into gender lens funds are growing, the assumption that diversity within companies improves financial performance is under review.

Capital Monitor analyzing the data on gender lens funds collected by Parallelle Finance found that there are no sectors that are truly performing well on gender diversity and that gender lens funds do not tend to outperform their relative benchmarks.

Among the reasons why these funds do not behave differently from conventional funds is certainly the fact that they are slightly underweight in IT stocks: the lack of female leadership in the best tech companies has kept out of these indices many big growing names like Amazon.com and the parent company of Google Alphabet.

Another possible reason might be that fund managers are not responding to substantial changes occurring within their portfolio companies; therefore, if a female CEO is replaced by a male CEO, the company remains in the fund.

In conclusion, funds for gender lenses appear to be neither strongly inferior nor superior to their peers and this gives weight to those who argue that some fund managers may exaggerate with the body of evidence indicating the connection between gender and financial performance; but it should be remembered that as long as gender inequality persists at company level, it will be difficult to determine what benefits equality can offer.