Growing research has shown that companies with greater board diversity perform better and can provide greater stock performance for investors, reports CNBC.
Investing in environmental, social, and governance (ESG) funds has become a growing priority for investors, with more than $330 billion currently carried in ESG funds, according to Morningstar. Of that, $3.6 billion is allocated to mutual funds, ETFs, and other equity products that focus on gender equity, and while it’s a small sliver of the pie, it’s growing, according to Parallelle Finance.
Inflows into funds that utilize a gender lens have grown in the last five years, with attention boosted in the space by things such as the #MeToo movement and high-profile sexual harassment cases. Funds that invest in gender equity typically have a gender diversity and/or minority representation percentage requirement within the board of directors and executive level positions. Additionally, such funds generally also contain requirements regarding broader pay equity amongst employees and business models and policies that support employees across the gender spectrum.
“We’re seeing more investors, primarily women … looking to bring a gender lens to their portfolio,” said Kathleen McQuiggan, financial advisor for Artemis.
Studies have found that companies with larger gender diversity generally exhibit higher share price performance (S&P Global), have better risk management (Morgan Stanley), and also have less fraud (University of Toronto).
Currently, within the S&P 500, women only hold a third of board seats and 6% of companies are run by women. This trend will most likely be changing across industries with the SEC’s approval of a rule from Nasdaq that all newly listing companies must have at least two diverse board directors or have to explain why they don’t. Some states have also passed legislation that requires certain levels of board diversity, with more in the pipeline.
SPDR Offers Investing With a Gender Lens
State Street Global Investors recognizes the importance of investing in a future that is more female by supporting companies that are practicing gender equity today. The SPDR SSGA Gender Diversity Index ETF (SHE) offers data-driven exposure to companies with the highest diversity amongst leadership positions within their industries.
SHE follows the SSGA Gender Diversity Index, an index that tracks large-cap U.S. companies exhibiting gender diversity within their senior leadership.
The benchmark pulls from the top 1,000 U.S. stocks by market capitalization, utilizing three different gender diversity screens to narrow down its selection universe.
These metrics include the ratio of female executives and female board of director members to all executives and all board of director members, the ratio of female executives versus all executives, and the ratio of female executives (excluding those on the board of directors) compared to the number of executives in total (again, excluding board members).
For the purposes of the index, “executives” are defined as people holding any position of vice president or higher in a company, or a position of managing director and above in a financial sector company.
According to their free-float market caps, the top-ranking 10% of companies within each sector are selected and weighted proportionally. Each stock has a maximum weight cap of 5%.
The top three sectors in SHE include information technology (31.58% of its portfolio), healthcare (12.75%), and consumer discretionary (12.53%).
SHE carries an expense ratio of 0.20%.
For more news, information, and strategy, visit the ESG Channel.