Can Female Executives Improve the Quality of Your Portfolio?

By Paula Wieck, CLS Investments

When a recent CFA Institute survey revealed that only one in five CFA charter-holders are female, I wasn’t surprised. As a female portfolio manager, I’m often one of the only women in the room.

While CLS works hard to make sure we have a diverse team, and I work with fantastic, forward-looking male colleagues and partners across the nation, I’d love to see the number of my female peers increase in the industry.

Numerous studies have revealed female leadership in corporate America as a whole is lackluster. Women only represent 5% of CEOs, 19% of board members, and 25% of executive and senior-level positions across multiple corporate sectors. Despite decades of progress, global corporations still have much work to do. But, why should investors care?

representation-of-women-01According to MSCI, research shows companies with strong female leadership have performed about 36% better in terms of return on equity (ROE) than companies where female leadership is lacking. Additionally, the Peterson Institute for International Economics found that companies that have no women in executive, senior, or board level positions are associated with a 15% drop in profitability compared to those with 30% female representation in leadership roles.

A study by the McKinsey Institute, “Why Diversity Matters,” revealed that companies with diversity among their employees are more likely to report higher financial returns than their industry peers.  Some of the logic behind this idea includes:

  • More diverse companies are able to have greater and more talented candidate pools.
  • They’re able to better relate and empathize with their customer base (in which women and minorities compose a large percentage).
  • They have higher employee satisfaction overall.
  • The diverse backgrounds and experiences of their employees allow for creative and innovative solutions to corporate issues.

Essentially, companies that emphasize creating diverse teams, particularly in leadership, have higher quality characteristics and a stronger competitive advantage, making them very attractive to potential investors.

Last year, the financial services firm State Street launched The State Street Global Advisors (SSGA) Gender Diversity Index ETF (SHE), which ranks female representation in leadership roles among the largest 1,000 listed U.S. companies in their respective sectors.

According to back tests, the SSGA Gender Diversity Index outperformed the Russell 1000 in many instances going back to 2003. Running the data through our proprietary factor models, the index’s exposure to quality ranks as high, if not higher, than many high-quality domestic indices. SHE won multiple awards at the fourth annual U.S. Awards Dinner in March, including:  Best New ETF, Most Innovative ETF, Best New U.S. Equity ETF, Thematic ETF of the Year, and the People’s Choice Award.

As a woman and a portfolio manager, I can get behind this research. We’ve recently added exposure to this unique take on domestic high-quality in CLS portfolios, and we will continue to look for opportunities to do so in the months ahead.

This article was written by Paula Wieck, CFA, a Portfolio Manager at CLS Investments, a participant in the ETF Strategist Channel.

Disclosure Information

This information is prepared for general information only.  Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such.  All opinions expressed herein are subject to change without notice. The graphs and charts contained in this work are for informational purposes only.  No graph or chart should be regarded as a guide to investing. CLS is not affiliated with any of the companies mentioned above. While some CLS portfolios may contain one or more of the specific funds mentioned, CLS is not making any comment as to the suitability of these, or any investment product for use in any portfolio. 2501-CLS-4/27/2017