A Push for Gender Diversity & a Play to Profit from It

Last Thursday (March 9), the ongoing bull market for the S&P 500 hit eight years in length. Over those eight years, the index has gained a total return of +314.4%, or an average annual return of +19.4%.

But, this past Thursday was an important date for another reason …

It was International Women’s Day 2017.

This year’s theme: #BeBoldforChange. In other words, call on the masses or call on yourself to help forge a better working world — a more gender-inclusive world.

From March 2 to March 10, 43 global stock exchanges conducted bell-ringing celebrations for gender equality.

To celebrate International Women’s Day, State Street Global Advisors offered a bold new symbol of women in corporate leadership roles. Standing strong and confident, a new iconic landmark arrives in the one place no one can ignore — NYC’s financial district.

Frankly, a push for women’s economic empowerment couldn’t come at a better time …

  Women take home 1/10 of global income, while accounting for 2/3 of global working hours. (Sustainable Stock Exchanges Initiative)

  Per a 2016 review of 1,000 listed companies, the average representation of women in the leadership was 23% in senior management, 21% on boards, 4% have a female chairperson, and 3% have a female CEO. (Bloomberg)

  Only 5% of companies in the Russell 3000 Index have female CEOs. (Catherine Yoshimoto — FTSE Russell Senior Index Product Manager)

These numbers are staggering given that women make up 47% of the civilian labor force, of which 75% work full-time.

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What can you do to improve the pipeline problem of women in the workplace?

As Meredith Jones, an alternative investment consultant and author of Women of the Street: Why Female Money Managers Generate Higher Returns (And How You Can Too), says you can you can contribute in three easy ways:

1.) Mentor women in your organization.

2.) Interview at least one woman for every position. (You don’t have to hire them.)

3.) Educate yourself on female investment managers.

Speaking of investments, there’s actual evidence showing company — and stock — performance can improve by having multiple females in the C-suite.

McKinsey found companies in the top quartile for gender diversity were 15% more likely to have financial returns greater than their industry average.

For instance, in the last five years, the 20 S&P 500 companies with the highest percentage of female board members have outperformed the broader index by an average of 3% per year.

MSCI (Morgan Stanley Capital International) concluded companies with strong female leadership boasted higher returns on equity (ROE) than those without it. (10.1% ROE for companies with strong female leadership vs. 7.4% ROE for companies without a critical mass of women at the top.)

And another Morgan Stanley research report discovered companies with greater gender diversity produced slightly higher returns and lower volatility over the five-year period from March 31, 2011, to March 31, 2016.

To see even more case studies on how gender diversity works as an investment strategy, check out Pax World Investments white paper: Gender Equality as an Investment Concept.

Thanks to State Street Global Advisors (SSGA) there’s a relatively new ETF that focuses on gender-diverse corporate leadership.

A year ago, SSGA launched the SPDR SSGA Gender Diversity Index ETF (SHE).

I reached out to Jenn Bender, SSGA’s Director of Research for the Global Equity Beta Solutions team. She told me why her company brought this ETF to market:

"We wanted to give investors an opportunity to direct capital to companies that have demonstrated a commitment to gender diversity. At the same time, companies with greater percentages of women at the top have also been shown to demonstrate financial success, both in terms of performance and profitability. We see this as a win-win for investors and for diversity in corporate America."

SHE tracks the SSGA Gender Diversity Index. This index is made up of large-cap companies that are leaders in their respective industry sectors in advancing women through gender diversity on their boards of directors and in senior leadership positions.

According to SHE’s prospectus:

Companies are ranked within each sector by the following three gender diversity ratio-based criteria: (i) ratio of female executives and female members of the board of directors to all executives and members of the board of directors; (ii) ratio of female executives to all executives; (iii) ratio of female executives excluding executives who are members of the board of directors to all executives excluding executives who are members of the board of directors.

The Index comprises companies that are eligible for inclusion based on the ratio-based criteria and which have at least one female in one of the following positions in the company: Chief Executive Officer, chairperson, or member of the board of directors.

This methodology results in 185 current holdings. Here’s a sampling of companies that pass the test:

Source: SPDR SSGA Gender Diversity Index ETF Fact Sheet, 12/31/16

So far, SHE has garnered a fair share of interest. In its first 12 months, the ETF has collected $290 million in assets. Granted, the lion’s share of that came from a $250 million allocation from the California State Teachers’ Retirement System (CalSTRS).

This year through March 10, SHE is slightly behind the SPDR S&P 500 ETF (SPY) on a total return basis …

Source: YCHARTS

I think there’s a strong chance this fund will pull ahead of the market over time. The index backtests have outperformed the S&P 500 by an average of over 3% per year since mid-2002.

SSGA is also putting its money where its mouth is. To show its commitment to gender diversity, the company will direct a portion of its revenue to charitable organizations that partner with K-12 schools to address gender bias and prepare girls for future business leadership roles.

Due to its large-cap focus, this ETF can be used as a core position in a portfolio. Or if you’re interested in an ESG (Environmental, Social and Governance) or Impact Investing approach, it can also serve as a smaller satellite position.

Shares of SHE are currently trading right at $66.

To learn more about the SPDR SSGA Gender Diversity Index ETF (SHE), click here.

Best,
Grant Wasylik

Originally from Pennsylvania, Grant graduated from Juniata College with an economics major and accounting minor. Since graduation, Grant has worked in the investment industry for almost two decades by serving in various roles … Prior to coming to…