Investing more in women lowers portfolio volatility

INVESTING in companies that have more women in leadership roles can help lower the volatility of your portfolio, according to Bank of America Corp.

Firms with more gender diversity among managers have consistently seen lower shareprice swings and reduced earnings volatility, the bank said in a March 7 report. They also boast of higher returns on equity, it said.

Analyzing the period from 2010 to 2016, strategists including Savita Subramanian found that firms in the S&P 500 with women making up at least 25% of their executives posted higher median returns on equity the following year. This suggests gender diversity may drive returns, they said.

The findings were particularly strong for technology companies, according to the note.

“While we did not find better price performance trends for companies with high ESG scores on gender diversity metrics, we did find these metrics to be effective signals of future price and earnings risk, as well as a signal of future returns- on- equity,” the analysts wrote. “In addition, companies with high scores on these metrics have generally been re-rating in recent years.”

The study also looked at female participation on company boards, which has been “steadily improving” over the last decade but “still has a long way to go.”

Having a diverse board is an important aspect of corporate governance and helps companies better represent themselves with and relate to their customers, the strategists wrote. It can come up with more diverse opinions and ideas, and better help the company compete and adapt to changes in the industry, the analysts wrote.

“Greater board diversity could have saved the industry from some of its challenges, had new views of shifting retail preferences forced boards to prioritize online spending over store expansion,” the report said.