It can be difficult enough to figure out which companies to invest in if you want to support those that promote women in leadership, but even harder to analyse whether your funds are investing in them.
We are hoping to address this at Morningstar. Recently, we started measuring the gender diversity of companies’ boards and executives, helping investors understand which stocks are led by women and whether this has an impact on performance, and the results show that we still have ways to go in reaching gender equality. So which funds should you look for if you want to increase your exposure to female-led stocks?
Our diversity data is limited to the UK, US and Canada, and provides a binary view of male and female executives and directors. To make sure we get an accurate representation of the companies in a portfolio, we have screened for funds where over 80% of the holdings fall under our diversity coverage, reflecting fund rules to invest 80% in their respective categories.
The funds with the highest exposure are unsurprisingly all UK equity funds. The top three all have a portfolio average of above 40% female executives and directors while the rest of the funds all have below 40%.
It is unsurprising that the highest average for a portfolio remains below an average of 50%. Only 10% of all stocks on the London Stock Exchange have more than 40% female representation at board and executive level, and only 50 companies in total have either an equal number or a female majority. In stark contrast, 385 companies, or 31% of the LSE, have no female executives or directors at all.
Of the 1,472 funds we looked at, the Morningstar category UK Equity Large Cap is the clear leader for funds supporting companies with female leaders. It doesn’t just hold the top 10 funds; only three funds in the top 100 are from different categories – Long/Short Equity, Aggressive Allocation and Europe Equity Mid/Small.
The top 3 funds are TM UBS (UK) - UK Equity, LF Lindsell Train UK Equity and Royal London UK FTSE4Good Tracker. TM UBS’s Morningstar Quantitative Rating (MQR) was recently downgraded from Bronze to Neutral because of expensive fees, but its portfolio has the highest average of female leaders, at 41.03% across 249 stocks. It has also returned 13.64% so far this year, with a five-year annualised return of 4.33%.
The Bronze-rated LF Lindsell Train UK Equity fund is invested in 27 stocks which are led by 40.24% women on average. It has also maintained fairly stable returns of 8.34% this year, and 8.77% year-on-year for the past five years.
Finally, Royal London UK FTSE4Good Tracker Trust has a Gold MQR. Its strategy leans towards achieving capital growth over the medium-to-long term. Like its top large-cap peers it has managed to keep the portfolio average of female leaders above the 40% mark, with 40.70% female directors and executives. This is despite holding 253 stocks. The tracker returned 12.90% in 2021 so far, and over the past five years, it has grown 4.47% yearly.
Looking at the average of all the fund portfolios in total, less than a third of management roles are held by women. The overall average is 28.76%. Japan funds account for most of the bottom funds on our list. Allianz China A-Shares Equity and AXA Rosenberg Japan both have portfolios where less than 10% of the stocks' management is female while the bottom 100 funds are all below 15%.
It is no surprise that most of the bottom funds have a Japan focus. Women occupy just 14.7% of all management roles in the country, despite government efforts to increase this to 30% by 2020 (now 2030). The World Economic Forum ranks it 120 of 156 on its Global Gender Gap Index – that’s the lowest of all developed countries. China, however, which is represented with the bottom fund on our list, ranks 107 on the WEF gender gap index.
But why is gender diversity at board- and executive level important? Matt Evans, portfolio manager of the Ninety One UK Sustainable Fund (where the 54-stock portfolio has 34.95% female leadership on average) says having a diversity of perspective enhances decision making, but it is also essential to ensuring a company’s future: the end of the Covid-19 pandemic could bring on closer scrutiny of diversity records and policies in the months ahead.
“What comes next is likely to go beyond asking whether businesses have achieved industry-average levels of diversity. We have a long way to go to provide everyone with equal opportunity, regardless of ethnicity, gender and physical ability. Consumers, authorities and the general public will be demanding leadership, new thinking and advances in best-practice from the business community. Corporate laggards in this regard risk reputational damage and a potential consumer backlash,” he says.
