Why women make better investors than men
Women account for just over half the nation's population. Our combined income comes to around $21 billion annually, and on a global scale women control a third of the world's wealth - and are adding an extra $7 trillion to the pool of wealth every year. It gives women considerable financial and economic clout.
But if you have money in a professionally managed fund - and that includes the nation's 150-plus superannuation funds - it's a near-certainty your investment is being managed by a male-led team, and this can have a significant impact on your investment returns.
Finding a female investment manager in Australia can be like looking for a needle in a haystack. A 2022 survey by the Financial Services Council (FSC) found women, on average, make up 27% of investment teams. FSC CEO Blake Briggs says this a 2% increase from 2021 but, he adds, "the investment community recognises there is more work to do" - a sentiment repeated by many in the industry.
It's in the top ranks of the investment business that the number of women falls away rapidly.
Morningstar found that in 2020, just 46 women held the title of portfolio manager in Australia. This figure plunged to 15 after excluding women who work offshore and those with shared responsibility for a portfolio. To put these figures in perspective, there are around 12,000 managed funds in Australia.
It's probably fair to say the average investor gives little thought to the gender make-up of their fund's management team. Most of us are likely to be more interested in the returns and fees, rather than who's calling the shots behind the scenes.
But there is a strong case for looking under the hood of a managed fund to check the gender balance of the portfolio team because it can have a big impact on results.
Let's be clear. The lack of female "fundies" is not a feminist issue. It's not about the career "glass ceiling". Nor is it an equal opportunity issue (though these factors all come into play).
For investors, the lack of women-led funds is a diversification issue.
It's been over half a century since economist and Nobel Prize winner Harry Markowitz revolutionised investing by proving that a diversified portfolio - one spread across different asset classes - gives investors the benefits of reduced volatility, lower risk and smoother returns.
Fast-forward to 2023, and there's a greater awareness that diversification extends beyond a portfolio's blend of investments. It also includes the mix of people making investment decisions on your behalf. Yes, we're still looking at an investment industry that in many ways remains a boys club.
Why women make better investors
We all bring different perspectives, experience and biases to the way we manage investments. These each play a role in investment behaviour.
A variety of studies has shown that on an individual level, men can be more likely to take risks for personal financial gain than women, while women are more likely to take risks to protect themselves against financial loss.
Men are more likely to trade their investments more frequently. Women are more likely to set goals and seek expert advice. Men tend to gravitate to speculative stocks, whereas women prefer shares with a good track record.
Of course, these are generalisations, and there are always many exceptions to the "rule". Moreover, the traits we show as individual investors don't always apply in a professional context where a fund manager is responsible for millions of dollars' worth of investors' money and has a clear mandate to follow.
Even so, having a combination of perspectives, backgrounds and biases can lead to better decision making. The evidence stacks up that investors can be the winners when women are at the helm of professionally managed investment portfolios.
The analytics firm Investment Metrics looked at the performance - and gender of fund leaders - of more than 70 global share funds in the nine months from January to September 2022. It was a particularly tough time in equity markets, with listed companies battling rising interest rates plus high inflation. The upshot was that global shares fell by 25.3% over the period.
These losses were not shared equally. The study found share funds led or co-led by women posted a median loss of 2.6%, compared to an average loss of 5.9% among male-led teams.
The study wrapped up saying: "During this frightful downturn of equities in 2022, it seems that women have done a better job at protecting assets." Yet across the portfolio teams under review, only 14% were women-led.
These sorts of findings are not one-offs. Research in 2020 by Rainmaker Information, publisher of Money, found super fund members in Australia can have greater confidence in their fund if it's led by a gender-diverse team.
According to Rainmaker, super funds with a high proportion of women in leadership positions outperformed male-dominated funds by 0.6% annually on average over three years.
MySuper default investment choices with higher than average female representation in their leadership teams were found to outperform male-dominated funds by 0.4%pa over five-year periods.
"This outperformance may seem small yet compounded over a member's working life it can translate into tens of thousands of extra dollars in your superannuation account," says Alex Dunnin, executive director of research at Rainmaker.
Performance benefits were also recorded for super funds with a woman as their chair or CEO. "For these products the performance boost was 0.9%pa over three years," says Dunnin.
Anne Graham, senior financial planner with Story Wealth Management, is not surprised by this outperformance.
"The benefits of diversity and inclusion in the workforce are well documented," she says. "Gender diversity brings different life experiences, perspectives and emotional intelligence to the table which, in my view, can only be beneficial."
She is quick to point out that this doesn't mean the views are better or worse - just more varied. She believes this leads to "more robust discussion and research, which should result in better outcomes".
Putting gender diversity at the top of agendas isn't just about the prospect of higher returns. We live in a gender-diverse world, where many women are active investors. More than one in three Australian women owns shares and around $1.2 trillion of the nation's super savings belong to women.
Heather Kennedy Miner is global co-head of client solutions and capital markets at Goldman Sachs Asset Management. She sums up the situation, saying, "Our clients are diverse and represent a diverse constituency, and they bring an expectation that the firms they entrust to manage their money have similar diversity of gender."
Nicole Gorton, director of global recruitment firm Robert Half, says everyone brings something different to the table. "So, it seems like a missed opportunity to limit the individuals who can 'sit at the table'."
If the benefits of gender diversity are so well documented, why is there a lack of female leadership? The gender gap in investment management has not happened overnight. It's the result of structural and cultural issues that go back decades.
Nicole Gorton explains the lack of women in the top echelons of the managed funds industry, saying: "We know statistically that men outnumber women in the finance sector more broadly, so already the pool of talent for potential women female leaders is smaller.
"Stereotypes associated with the investment management world have been persistent and have acted as a barrier for women wanting to enter a career in this industry. These include the sense of a male-dominated environment and a lack of work-life balance and female mentors present in managerial roles."
While Gorton says progress has been made, with more women entering the industry, "more needs to be done around mentorship and - in some cases, flexibility for more women wanting to enter a career or progress in investment management".
Change is happening in the investment industry, and though it's occurring at glacial speed, it is coming from within.
Hesta Super is a trailblazer here. With close to 80% female membership, the fund not only has a female chief investment officer, Sonya Sawtell-Rickson, it also has a female CEO in Debby Blakey.
"As an employer, we've long seen the benefit of diversity in building high-performing teams centred around a strong company culture," says Blakey.
"As a large institutional investor, diversity at both board and senior management levels is an accurate indicator of a well-run company, more likely to deliver long-term value to shareholders and better long-term returns for our members."
Blakey says HESTA surveys the external fund managers it uses every two years to uncover exactly how many women are in investment decision-making roles. "We want to know gender numbers the entire way up the chain.
"Since we started surveying our managers in 2018, we've seen improvements to the number of women in investment management roles.
However, there is still much work to be done, particularly if we're to see greater representation of women across the funds management industry."
More women in financial services
Other investment managers have come on board, too. Global investment manager First Sentier Investors (FSI) has set a target of 40% women in investment teams by 2033. In early 2023, FSI appointed Jane Daniel as chief risk officer, following the appointment of Kate Turner as global head of responsible investment in late 2022.
The Financial Services Council's Blake Briggs acknowledges that "women are under-represented in asset management roles" and says the funds management industry "continues to work on this to ensure women consider financial services as a career path".
Briggs adds that fund managers are connecting with industry initiatives, such as F3 (Future Females in Finance) and Future IM/Pact to raise awareness of what a career in investment management offers.
The FSC also launched its FSC Women in Investment Management Charter to provide members with a practical framework to support greater gender balance in investment management roles.
"Driving change will take time, but we are heading in the right direction when it comes to encouraging more women to choose the funds management industry to build a career," says Briggs.
Nicole Gorton agrees that change is happening across the finance sector. "Leadership teams are taking active steps to make their teams more gender diverse as they understand the many benefits linked to having a diverse workforce."
She notes that targets, including quotas, for gender diversity at senior management level have become more frequent in fund and investment management. That said, Gorton believes "much of the lack of women in the funds management industry can be traced to gender biases and stereotypes". And this, she believes, may take time to eliminate.
However, a couple of "X factors" could help to accelerate the number of women in leading roles across the investment industry.
The first is the COVID pandemic, which has opened up greater acceptance of employees (of all genders) working from home. This matters because research by the University of Sydney identified the lack of accommodation of working mothers' needs as a critical issue in the investment management industry.
Anne Graham agrees. "It remains challenging for women to rise to senior ranks, and stay there, when responsibilities in family life are split based on gender. When workplaces seriously accommodate the needs of families, and when there is an equitable split for childcare and home responsibilities, the needle might shift."
The other factor is that Australia is in the grip of a skills shortage. Robert Half's Nicole Gorton says that in today's tight labour market, where experienced financial services talent is hard to come by, corporate culture has become a critical part of recruitment and retention.
"Both existing and prospective employees value employers who take proactive steps to improve their working culture - and diversity, equity and inclusion are high on their agenda."
Case for more transparency
There is no silver bullet for improving gender diversity in the investment industry. And for investors, there is no one-size-fits-all solution to maximising returns. Female-led funds won't always generate the highest return, just as male-led funds won't all underperform.
Nonetheless, investors seeking an investment fund where women are well-represented, especially at the top levels, can face an uphill battle. It's not just about numbers. Discovering who is captaining the fund of your choice - super or otherwise - is not always easy. On this score, a little more transparency from the funds management industry wouldn't go astray.
Knowing the gender balance of an investment team would allow more Australians to invest in line with their views on diversity and equality, especially as these issues are likely to become more, not less, important, over time.
Get stories like this in our newsletters.