Investing in women

Based on an article from our U.S. partners

two women standing, looking at a tablet

New funds allow investors committed to gender diversity to align their investments with their values.

Key takeaways

  • Businesses in North America still haven’t achieved gender diversity; only a small percentage of companies have women in top jobs or gender-diverse boards.
  • New thematic investment funds allow investors to seek out companies that have made a commitment to gender diversity.

When it comes to business and investing, gender diversity is still an aspiration.

On the business side, just 5% of Russell 3000 companies have a woman as chief executive, and just 18% of board members are women. When it comes to personal finance, only 29% of women see themselves as investors, according to a recent Fidelity survey in the U.S.1

But a growing number of investment products are focused on companies that stand out on issues of gender diversity. This is part of a broader movement of investment options known as ESG – or environmental, social and governance investing – which considers not just the financial performance of a potential investment but also the other dimensions of corporate behaviour.

Nicole Connolly manages the recently launched Fidelity Women's Leadership Fund, designed to help those who want to invest in companies with women in senior leadership roles and a commitment to gender diversity, while seeking long-term outperformance. We recently spoke with Nicole, who joined Fidelity in 2000 and is the head of Fidelity’s ESG investing team.

How do you define a company with a commitment to gender diversity?

Nicole: My team looks for companies in which women are playing critical roles on the senior management team and are influencing the vision and strategy of the company. This type of leadership can be present at the executive level or at the board level, so the Fund also considers companies in which women make up more than 33% of the board.

My ESG team also takes a close look at each company, researching the company’s commitment to creating and maintaining an environment in which women can thrive. This could include a program to narrow the gender pay gap, the availability of child care services, the existence of a flexible work environment and the strength of the parental leave program. Further evidence of a company’s focus on gender diversity could include the measurement of the annual progress of the hiring, retaining and promotion of women. We believe that our assessment of these initiatives, as well as thoughtful discussions with companies on these issues, differentiates this Fund from other products in the gender lens investing (GLI) market.

For example, Accenture has made achieving gender equity by 2025 an explicit goal, and recently named a woman CFO. The company also has industry-leading revenue growth and a disciplined capital allocation policy that rewards shareholders through stock buybacks and dividends.

In the Russell 3000 Index, which includes the largest 3,000 publicly traded companies in the U.S., we have identified about 700 companies that meet our criteria.

Is there evidence to suggest gender diversity is good for the bottom line?

Nicole: My team’s research has shown that companies exhibiting gender diverse attributes – in this case, female representation in senior management and a minimum of two initiatives aimed at promoting gender diversity – have experienced higher returns than companies that did not. Since 2008, companies that meet these criteria have seen average excess returns of 0.99% on an annualized basis. I believe that when an organization taps into the knowledge and expertise of a diverse workforce, it has the potential to have a competitive advantage. (See chart below.)

More equitable companies have delivered higher returns historically.

Cumulative value of $10,000 invested
cumulative value of $10,000 invested
Source: Thomson Reuters and Fidelity Investments (FMR), as at April 2019. Past performance is no guarantee of future results.2

From an investment perspective, do companies that meet these criteria look different from the market overall?

Nicole: We’ve noted that since we started our research, the investable universe is growing, which is encouraging. This is due to the hard work at many companies to address the leadership gaps mentioned earlier and to put effective gender diversity policies in place. The current universe of companies that meet our gender diversity criteria does align fairly closely to the overall market (Russell 3000); it skews slightly overweight to consumer discretionary and underweight to energy and industrial companies.

I am mindful of those differences, so when I construct the portfolio, I am, when appropriate, seeking to mitigate those differences versus the benchmark. In my investment approach, I try to invest for the long term, but adjust the portfolio to emphasize more growth-oriented companies or more quality companies depending on where I think we are in the business cycle. Ultimately, we are looking to outperform the market over time.

Where does a fund like this fit into an individual investor’s strategy?

Nicole: The Women’s Leadership Fund and other gender lens investment products aim to deliver return with a purpose, and in this case, the purpose is paving the way for future female leaders and helping women across all industries thrive in their professional life.

Gender diversity is one part of ESG investing. In surveying our retail investors, we have found that seven out of ten investors want to invest in accordance with their personal values.3 I believe that as investors come to appreciate the ability to achieve a competitive return in an ESG fund, interest in this area of the market will only grow.

These companies exist across sectors and market caps, so you can build a diversified investment approach. If you are an investor who wants to support companies that are leading the way on gender equality in the workplace, or if you are a parent who wants to show your children that female-led companies exist and can succeed, these investments could make sense as part of your diversified portfolio.

1. Fidelity Investments in the U.S.; 2018 Women and Investing Study.

2. Not intended to represent the performance of any Fidelity Fund or Funds. Investment universe made up of top 1,000 companies by market capitalization for each time period. Filters include: 1) companies that have two or more gender diversity corporate governance policies in place, according to Thompson Reuters data as of each historical period, and 2) companies that have 50% or greater female representation in senior management roles, according to Thompson Reuters data as of each historical period. Note that the benchmark was modified to avoid sector bias, such that each benchmark sector weighting was adjusted to equate to the sector weightings of companies that meet both of the diversity criteria above. Because diversity metrics are typically reported in Corporate Social Responsibility (CSR) reports within six months after the end of a fiscal year, the study post-dates fiscal year data to the following June (e.g., June 2007 incorporates fiscal year 2006 data for all companies) to avoid look-ahead bias.

3. Online survey conducted in the a survey of 730 members of the FC Customer Advisory Panel in April and May 2018. All survey respondents were Fidelity U.S. customers, screened for a minimum asset level and under the age of 80.

From time to time a manager, analyst or other Fidelity employee may express views regarding a particular company, security, and industry or market sector. The views expressed by any such person are the views of only that individual as of the time expressed and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time, based upon markets and other conditions, and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity Fund.

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