ETF issuers have introduced a number of strategies that cover socially responsible investment themes in recent years as a way to help investors diversify and align their portfolios with personal beliefs.
One of the most successful funds from that group is the SPDR Gender Diversity Index ETF (NYSEArca: SHE).
“We wanted to make a difference,” Jill Mavro, Senior Managing Director for State Street Global Advisors, said at the Charles Schwab Impact Conference. “We wanted people to stand up and take note that we were wanting to make a change in terms of board equality on the largest companies in the U.S.”
SHE seeks to track the performance of the SSGA Gender Diversity Index, which comprises of U.S. large capitalization companies with the highest levels within their sectors of gender diversity on their boards of directors and in their senior leadership.
The ETF offers an effective way to invest in firms that have a greater number of women represented in the upper management of their organizations relative to their peers. The underlying index ranks large- and mid-cap U.S. stocks on a few ratios that measure the number of women to men in executive and board roles and targets those with the highest scores, reflecting 10% of the market capitalization in each segment.
“There are numerous studies that show having a more diverse board, or one that at least made up three or more women, the companies outperform on a return of equity of upward 36% according to MSCI,” Mavro said.
According to a 2015 MSCI study that explored global trends in gender diversity on corporate boards between December 2009 and August 2015, companies with at least three female board members outperformed others in overall return on equity by more than 36%.
Additionally, according to a 2015 McKinsey Global Institute report, if women participate in the economy identically to men, an additional $28 trillion, or 26%, may be added to annual global GDP by 2025, compared to a business as usual scenario.
For more ETF-related commentary from Tom Lydon and other industry experts, visit our video category.