In 2010 the then French finance minister Christine Lagarde quipped that “if Lehman Brothers had been ‘Lehman Sisters’”, the economic crisis “would look quite different”. Her argument was that women have better “composure, sense of responsibility and great pragmatism in delicate situations”. The idea has spread to the investment world – US funds group State Street has just launched an exchange-traded fund investing in companies that rank highly on gender diversity, and two similar products are already on the market.
With only six female chief executives running FTSE 100 companies and fewer than 10% of US mutual funds run by women, there is certainly a case for more equality. However, that aside, does investing in companies run by women boost your returns? Some research suggests it might. Between 2005 and 2011, shares in US-listed firms with at least one woman on the board outperformed the market by an average of 26%, according to a study by Credit Suisse.
Meanwhile, Karen Rubin of market data firm Quantopian found that between 2002 and 2014 a hypothetical fund that bought shares in a company when a female chief executive was appointed, then sold when she left, would have cumulatively returned 348%, compared to 122% for the S&P 500 index of leading American shares.
However, the results aren’t conclusive. Professor Justin Wolfers of the University of Pennsylvania found that from 1992 to 2004, American firms run by women did not produce excess returns, although he notes that there were so few female CEOs that it was hard to draw a conclusion. A study by KIT’s Institute of Management found that having women on the supervisory boards of German firms did not boost returns, except for a narrow range of consumer goods industries.
It’s a similarly mixed picture in fund management. HFR, which produces market indices, found that hedge funds run by women returned an average of 69% between 2007 and 2015, compared to 37% for the industry as a whole. A 2013 study by consultants Rothstein Kass produced similar results. However, Nicole Boyson and Rajesh Aggarwal of North Western University, Boston, found that between 1994 and 2014 hedge funds run by women neither performed better nor took less risks than those headed by men.
Fund analyst Morningstar found that US mutual funds generally performed similarly over three, five and ten-year periods, regardless of the gender of the management team (although funds run by a mixed-gender team performed slightly better over the ten-year period).
One key benefit of having a more equal split between genders may be that it helps to avoid “groupthink”, where people with similar backgrounds fail to challenge each other’s assumptions. For example, Professor Paul Gompers of Harvard Business School studied 12,577 firms that had received venture capital. Those where the venture capitalists came from similar backgrounds performed more poorly than those with differing perspectives on company management. Of course, having more women on a board is no guarantee it won’t still be stacked with “yes men”, but it may help.
Overall, research-wise – partly due to limited sample sizes – the jury’s still out on whether firms and funds run by women are better investments. In practice, while the existing sector trackers have a short history, they haven’t shot the lights out, and it’s hard not to conclude that they are mainly aimed at institutional investors who want to tick a “social responsibility” box. In short, on a pure returns basis, there are many other factors to consider – such as is this stock or fund good value? – before you worry about the gender mix at board level.