Investing in Gender Equality

On Wednesday, 08 March 2017 the Johannesburg Stock Exchange (JSE) marked International Women’s Day by participating in the global movement of “Ringing the bell for gender equality”  to raise awareness of the vital role that organisations need to play in advancing gender equality.

The theme this year is: #BeBoldforChange. In other words, call on the world to help forge a better working world — a more gender-inclusive world.

There is an emerging consensus that the status and role of women is a strong indicator of a company’s growth potential, that is, the best companies are the ones that recognises the talents, ideas and contributions of women.

Of the many contributions that women can make to a company, the share price is the most significant of all.

It is becoming increasingly evident, in other words, that gender equality and women’s leadership can be understood as investment concepts. Integrating a gender lens into investment strategies may be a strategy for obtaining better long-term investment performance.

The push for women’s economic empowerment is crucial because

  • 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).

There is overwhelming evidence that investing in gender equity — or investing in companies that are committed to gender equality and women’s leadership — is a smart investment strategy:

  • A 2012 Credit Suisse Research Institute report reviewed 2,360 global companies and found that companies with women directors outperformed those without women directors in return on equity (ROE), average growth, and price/book value multiples. Moreover, companies that had at least one woman director had better share price performance than companies that didn’t.
  • Morgan Stanley Capital International (MSCI) concluded that 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 2011 to March 2016.
  • 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.

The need for a South African Gender Equity ETF

As part of its contribution to the female agenda, in 2015 the JSE introduced listing requirements requiring listed companies to have a policy for the promotion of gender diversity at board level and disclose their performance against it. The requirements were effective from January 2017. But more should and can be done to promote gender equality as an investment concept.

Since the birth of democracy in 1994 South Africa has seen a strong push for gender equity in policy and decision making in the public and private sectors. Despite this there is unfortunately still no ETF that focuses on gender-diverse corporate leadership. Frankly, the establishment of a Gender Equity ETF in South Africa couldn’t come at a better time than now.

As the focus shifts towards radical economic transformation the push for women’s economic empowerment becomes all the more imperative. The investment environment is more than ready and market anticipation is high.

For instance, a year ago, State Street Global Advisors (SSGA) launched the SPDR SSGA Gender Diversity Index ETF (SHE) that focuses on gender-diverse corporate leadership. Jenn Bender, SSGA’s Director of Research for the Global Equity Beta Solutions team explains 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.”

SHE tracks the SSGA Gender Diversity Index and is comprised of large-cap companies that are leaders in their respective industry sectors in advancing women through gender equality on their boards of directors and in senior leadership positions. In the ETF:

 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.

This methodology has netted 185 current holdings. So far, SHE has garnered a fair share of interest. In its first 12 months, the ETF collected $290 million in assets. This year through March 10, SHE is slightly behind the SPDR S&P 500 ETF (SPY) on a total return basis.

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.

Why am I telling you all this? Quite simply, a South African Gender diversity Index ETF is long overdue. The value of such an investment in gender equality is exponential and real. We need this investment instrument in South Africa as a priority.