Gender diversity investing

Debunking the common misconception that investing in gender diversity strategies means investors must be willing to sacrifice financial returns.

Impact investing exemplifies the idea that one can “do well while doing good” with one’s investments. In other words, one can purposefully make investments that help achieve certain social benefits and also generate financial returns. One of the sub-categories of impact investing —gender diversity investing—focuses on aligning those investors that are passionate about gender equality and women’s rights with investment options that have a gender lens, but also aim to produce strong returns. The concept behind gender diversity investing is that by investing in companies that support women, you can help promote pay equality, greater female participation in the economy, women’s access to start-up capital, and the production of goods and services that improve or advance female lives, without sacrificing investment returns. Supporting these causes can help lead to broader productivity gains and increased labor supply which, in turn, could add trillions to the U.S. economy¹ as estimated by McKinsey and Company.

There is a common misconception that investing in gender diversity strategies means investors must be willing to sacrifice financial returns. Academic studies show that greater female participation in the top ranks of companies can actually improve the bottom line. The Peterson Institute for International Economics (PIIE) completed analysis on a global survey² of almost 22,000 public companies in more than 90 countries that suggests the presence of female executives may lead to greater firm profitability. Similarly, a McKinsey and Company study shows that companies in the top quartile for gender diversity are 15% more likely to have stronger financial returns than their industry peers,³ indicating that investing in these types of companies could ultimately provide investors with a “gender dividend.” Further, greater gender diversity in the workplace has positive economic implications.

For example, the Organization for Economic Cooperation and Development estimates that, on average, a 50% reduction in the gender gap in labor force participation could lead to a global GDP increase of approximately 6% by 2030.⁴

In addition, a recent report from Oliver Wyman provides evidence that female investors are stronger advocates for gender diversity in their portfolio companies, indicating that investments in funds that are managed by women could have a twofold impact on gender diversity. Although women portfolio managers account for just 15% of all portfolio managers around the globe, there is no proof that male portfolio managers provide stronger portfolio performance than female portfolio managers.⁵ In fact, a new study shows that hedge funds managed by women outperformed broader benchmarks of alternative investment managers for the past five years, even though fewer than one in 20 alternative managers employ a female portfolio manager.⁶ The HFRI Women Index returned 4.4% compared to the 4.2% return of the HFRI Fund Weighted Composite Index, which is a gauge of hedge funds across all strategies and genders, for the five-year period ending December 31, 2016.⁷

Although gender diversity investing has gained interest among many female and millennial investors in particular, the positive impact that gender lens investing has on firm profitability, investment returns and the economy makes it an investment strategy that should appeal to a much broader group. Given the growing number of gender diversity investment strategies, investors have the option to apply a gender lens to just one asset class, or to their overall portfolio.

Fidelity Charitable donors can implement a gender diversity investment strategy in a variety of ways, including recommending a portion of their charitable contributions be invested in companies or strategies that help support women or by applying a gender lens to certain of their grant recommendations.

¹How advancing women’s equality can add $12 trillion to global growth

²Is Gender Diversity Profitable? Evidence from a Global Survey

³Why diversity matters

⁴Why a push for gender equality makes sound economic sense

⁵Women in financial services

⁶The Performance of Female Hedge Fund Managers

7Hedge funds run by women outperform