Why should you invest in women? Because it’s 2017. Because it’s the right thing to do. Because you want a better world for your daughter. And not least because there is a strong business case for investing in women.
Yes, the research clearly shows that where women are better represented on corporate boards and in senior management, companies simply perform better.
A Credit Suisse study found that companies with higher percentages of women in senior management outperformed companies with lower percentages over a five-year period in terms of share price and higher return on equity (ROE)1.2 Similarly, a Morgan Stanley report found that companies with greater gender diversity delivered higher ROE and lower volatility than their low diversity peers.3 A February 2016 Peterson Institute survey of nearly 22,000 firms from 91 countries found that the presence of female executives is associated with unusually strong firm performance as measured by both gross and net margins.4 And in 2015, a RobecoSAM paper noted that gender diversity and equality contribute to better corporate performance and investment returns.5
Sodexo, in its own company-wide study of the effects of gender balance in management, found that business units with greater gender balance had higher client retention rates and customer satisfaction ratings.6 MSCI reported in late 2015 that companies in the MSCI World Index with strong female leadership generated ROE of over 10% per year, compared with 7.4% for companies with all-male boards.7 The International Monetary Fund documented a positive association between gender diversity among senior managers and financial performance of 2 million companies in Europe.8
These studies buttress an already robust body of research establishing a link between gender diversity in corporate leadership and financial performance.9 Simply put, gender diversity and competitive financial performance go hand in hand.
Yet women still hold only about 5 percent of CEO positions and 21 percent of board positions among S&P 500 companies,10 and only about 16 percent of senior management positions globally.11 At the current rate of progress, it will take 170 years to achieve global gender parity.12
This is unacceptable.
It’s time to ask ourselves: what can we do to close this gender gap?
Well, we did ask ourselves this very question. Having seen the research demonstrating that companies with gender diverse leadership teams perform better than their less diverse peers, we decided that it was time to invest in these companies.
In June 2014, we launched the first mutual fund that invests in the highest-rated companies in the world for advancing women’s leadership. We wanted to prove in real time, with real money, that companies with more women in leadership can deliver better investment returns. We wanted to offer investors the opportunity to invest in these companies, and to benefit from their vision and their success. And guess what? The strategy has been working. The Pax Ellevate Global Women’s Index Fund (PXWEX) has outperformed the MSCI World Index for the three-year period ending September 30, 2017.13
This outperformance isn’t an anomaly. The team from UBS CIO Wealth Management Research conducted a regression analysis of returns over a six-year period to independently assess whether more gender-balanced S&P 500 companies outperformed the broader market.14 What did they find? You guessed it: Companies with greater diversity tended to outperform.
It’s also worth noting that women want to invest in other women. In fact, 77 percent of women want to invest in companies with diverse leadership teams, according to the Center for Talent and Innovation.15 And according to a recent survey of high net worth investors by U.S. Trust, 34 percent of women are interested in impact investments.16 For many women investors, it’s no longer about earning a fair return OR having a positive impact; it’s about a fair return AND a positive impact.
So, women want to invest in gender diverse leadership teams and gender diverse leadership teams have delivered better financial performance.17 Sounds like a winning proposition to us.
When it comes to advancing gender diversity, we believe investors can make an impact. They can put their money to work by investing in companies that are forward-looking on this front.
This includes companies like Gap Inc., which is a signatory to the UN Women’s Empowerment Principles and where over forty percent of executive management, including CFO Teri List-Stoll, are women. Or American Water Works Company, where women comprise more than half of the company’s board of directors and nearly fifty percent of the company’s executive officers. Or Accenture, which has set a goal to achieve a gender balanced workforce by 2025 and has implemented numerous programs aimed at attracting, advancing and retaining women, including a sponsorship program. Companies like these – all holdings in the Pax Ellevate Global Women’s Index Fund – are leading the way when it comes to advancing gender diversity and women’s leadership.
The fact of the matter is that we can close the gender gap, and we can close it by becoming more conscientious investors. We can make a difference. We just need to put our money to work.
1 Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.
2 Credit Suisse, The CS Gender 3000: The Reward for Change, September 2016.
3 Morgan Stanley, Putting Gender Diversity to Work: Better Fundamentals, Less Volatility, May 2016.
4 Marcus Noland, Tyler Moran and Barbara Kotschwar, Peterson Institute, Is Gender Diversity Profitable? Evidence from a Global Survey, February 2016.
5 RobecoSAM, Does corporate gender equality lead to outperformance?, September, 2015.
6 Michel Lanel, “Why Gender Balance Can’t Wait,” Harvard Business Review, March 8, 2016.
7 MSCI, Women On Boards: Global Trends in Gender Diversity on Corporate Boards, November 2015.
8 IMF, Gender Diversity in Senior Positions and Firm Performance: Evidence from Europe, 2016.
9 Visit Pax World’s Gender Research page for a list of studies on the relationship between gender diversity and corporate performance: http://paxworld.com/category/research/gender/
10 The S&P 500 (Standard & Poor’s 500 Index) is an index of 500 stocks seen as an indicator of U.S. equities and a reflection of the performance of the universe of large capitalization companies.
11 Catalyst, Women in S&P 500 Companies, June 2017. Pax Gender Analytics, 2016.
12 The World Economic Forum, Global Gender Gap Report 2016, October 2016.
13 The annualized returns for the Pax Ellevate Global Women’s Index Fund – Individual Investor class as of 09/30/2017 were, 1 year: 18.38%, 3 year: 7.87%, 5 year: 10.98%, 10 year: 3.51%. The annualized returns for the Pax Ellevate Global Women’s Index Fund – Institutional class as of 09/30/2017 were, 1 year: 18.63%, 3 year: 8.14%, 5: year 11.26%, 10 year: 3.76%. The returns for the MSCI World Index as of 09/30/2017 were, 1 year: 18.17%, 3 year: 7.69%, 5 year: 10.99%, 10 year: 4.22%. The returns for the Pax Global Women’s Leadership Index as of 9/30/2017 were, 1 year: 18.97% and 3 year: 8.64%. Performance data quoted represent past performance, which does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For most recent month-end performance information, visit here. Total annual Pax Ellevate Global Women’s Index Fund operating expenses, gross of any fee waivers or reimbursements, for Institutional Class and Individual Investor Class shares are 0.65% and 0.90%, respectively, as of 5/1/2017 prospectus.
14 UBS CIO Wealth Management Research, On the road to parity, Q1 2016.
15 Sylvia Ann Hewlett and Andrea Turner Moffitt with Melinda Marshall, Center for Talent and Innovation, Harnessing the Power of the Purse: Female Investors and Global Opportunities for Growth, 2014.
16 U.S. Trust, U.S. Trust Insights on Wealth and Worth®, 2017.
17 Visit Pax World’s Gender Research page for a list of studies on the relationship between gender diversity and corporate performance: http://paxworld.com/category/research/gender/
As of 9/30/17, Gap Inc. was 0.04%, American Water Works was 1.4% and Accenture was 0.4% of the Pax Ellevate Global Women’s Index Fund.