Wait­ing for a pay­off in bet on women-led firms

The Washington Post Sunday - - TAKING STOCK - BY JENA MCGRE­GOR jena.mcgre­gor@wash­post.com

Last sum­mer, in­vest­ment firms launched two novel op­tions for in­vestors who want to bet on com­pa­nies with high num­bers of women in their top ranks.

An ex­change-traded note that Bar­clays in­tro­duced last July tracks an in­dex of 88 U.S. com­pa­nies that have a fe­male chief ex­ec­u­tive or a board where at least 25 per­cent of di­rec­tors are women, among other cri­te­ria.

Around the same time, Sal­lie Krawcheck, a high-pro­file for­mer Wall Street ex­ec­u­tive who owns the women’s pro­fes­sional net­work Ell­e­vate, teamed with Pax World In­vest­ments to start an in­dex fund along the same lines.

Those ve­hi­cles for in­vest­ments also pro­vided a real-world ap­pli­ca­tion of re­search: Stud­ies have shown that com­pa­nies with greater di­ver­sity at the top tend to have bet­ter fi­nan­cial per­for­mance.

“Re­search has just been re­search,” Krawcheck told The Washington Post last year. “This in­dex fund, by in­vest­ing in the top 400 com­pa­nies in the world for women — by per­cent of women on the board [or] per­cent of women in se­nior lead­er­ship teams— is a way of ex­press­ing that in­vest­ment case.” So how have they done? As it turns out, both in­vest­ments had un­der­per­formed their bench­marks as of June 19. The Bar­clays Women in Lead­er­ship ETN, which launched July 10, re­turned 7.7 per­cent through June 19, ac­cord­ing to data from Morn­ingstar. That’s lower than the Stan­dard & Poor’s 500-stock in­dex, which re­turned 9 per­cent over the same pe­riod.

Mean­while, the Pax Ell­e­vate Global Women’s In­dex re­turned 3.94 per­cent through June 19, since June 4 of last year. That, too, was lower than its bench­mark, the MSCI World In­dex, which gained 5.34 per­cent.

Liz Wicks, on the struc­tured prod­ucts team at Bar­clays, said the re­sults re­flected the fact that the fund was over­weighted in sec­tors that un­der­per­formed. Bar­clays caps the num­ber of com­pa­nies from each sec­tor to get amore di­verse in­dex, and it doesn’t mimic the weight­ing of sec­tors found in the S&P 500 in­dex.

“If we’d weighted in ac­cor­dance with the S&P 500,” Wicks said, Bar­clays’ re­search shows that “we’d out­per­form. That’s how you can say it’s not the com­pa­nies with women in lead­er­ship.”

Kath­leen McQuig­gan, man­ag­ing di­rec­tor of Pax Ell­e­vate, said that fund was out­per­form­ing the mar­ket early this year but fell be­hind in the sec­ond quar­ter due to a strong per­for­mance by Ja­panese stocks. Un­like the MSCI World In­dex, the Pax fund does not in­clude Ja­panese com­pa­nies, be­cause they rarely have women in their top ranks.

“We’re try­ing not to make any re­gional or sec­tor bets,” McQuig­gan said. “We’re just try­ing to find the high­est-ranked com­pa­nies” for gen­der-based-lead­er­ship. Overtime, she added, “com­pa­nies that have this crit­i­cal mass of di­verse lead­er­ship at the top, we think, will out­per­form a broader-based in­dex.”

Robert Golds­bor­ough, a fund an­a­lyst at Morn­ingstar, said one year of per­for­mance isn’t enough to re­veal any­thing de­fin­i­tive. “We can’t draw a con­clu­sion based on that,” he said. “I would be com­mit­ting mal­prac­tice if I tried to.”

The firms be­hind these in­vest­ments could reap other kinds of pay­offs. Ian Mer­rill, a man­ag­ing di­rec­tor at Bar­clays, said clients have told him they’re “glad a big bank is putting out a view on this and try­ing to do some­thing about it.” That has helped him see it as “an in­tan­gi­ble value that’s hard to quan­tify, but it’s well be­yond what the as­sets are.”

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