Companies With Female Leaders Outperform: ThirtyNorth

ThirtyNorth's Women Impact Strategy outperformed its benchmark by about 3.5% in its first year

Blair duQuesnay, left, and Suzanne Mestayer. Blair duQuesnay, left, and Suzanne Mestayer.

Despite research that links gender diversity at the top with stronger corporate performance, ThirtyNorth Investments saw few investment options that leverage this research. So, just over a year ago, the majority-women-owned firm launched its Women Impact Strategy Separately Managed Account.

The strategy focuses on the financial benefits of investing in those companies that have the highest percentage of women on their boards of directors and in their C-suite.

Portfolio managers Suzanne Mestayer, managing principal, and Blair duQuesnay, principal and chief investment officer, stopped by ThinkAdvisor’s New York office to discuss why it launched its Women Impact Strategy one year ago.

“The national conversation around women seems very prevalent … but what we’re not seeing is this attention on the investment thesis as much,” duQuesnay said. “Which I think is very compelling. Not only is it wonderful to bring attention to the accomplishments of women, but also that there may be an ability to earn financial return in addition to aligning investments with the value.”

Since the Women Impact Strategy’s inception on April 7, 2016, it has consistently outperformed the Russell 3000 Index net of fees. On its one-year anniversary, the Women Impact Strategy’s outperformance over its benchmark was about 3.5%.

“Normally as investment advisors we say, ‘One year is not a long time, you’ve got to give it more time,’ but we were very pleased to see that happen the first year,” duQuesnay added.

The strategy starts with a universe of more than 500 global companies previously identified as leaders in gender diversity. From there, a rigorous screening process is applied that considers economic performance indicators based on size, value and profitability. Then, a gender lens screen is applied that seeks out companies with boards that are at least 20% women and that have at least one woman in the C-suite. The companies are then balanced and ranked by sector, and the top 50 are chosen for the portfolio.

This process happens once a year, duQuesnay said.

In their portfolio, the average percentage of women on boards is 30.6% and in the C-suite is more than 20%.

“Globally the percentage of women on boards are hovering right under 15%,” Mestayer said. “And in the U.S. it’s a little higher but it’s not 20%.”

DuQuesnay is hopeful that their strategy’s minimum of 20% as its gender lens criteria will go up as more and more companies add women to leadership positions.

“Women now comprise 50% of medical students and law school students, but what we’re seeing is that less than 4% of global CEOs are women,” duQuesnay added. “They’re still not making it to the very top. It would be wonderful to see gender lens investing bring this issue more to the forefront and enact change in these companies that more women would make it to the top.”

According to research from Credit Suisse and ThirtyNorth Investments, the presence of women on boards improves stock performance.

ThirtyNorth’s white paper, Impact of Women in Corporate Leadership, evaluated the companies in the S&P 500 index in 2006 and tracked their performance for 10 years.

According to their research findings, companies with no women on their boards underperformed those with one or more woman and, to a greater extent, underperformed companies with more than 25% female board members.

These findings mirror the results of the Credit Suisse Gender 3000 report, which measured similar results in 3,400 global companies. The study by Credit Suisse in 2016 found empirical evidence that companies with at least one woman on their board delivered excess returns at a compound annual growth rate of 3.5% from 2006 to 2016 over companies with no women on their boards.

“The white paper was our attempt to reconfirm what we read from Credit Suisse and others,” duQuesnay told ThinkAdvisor. “And it’s not an explanation of how we invest in our [Women Impact] strategy. It was our attempt to confirm that women in leadership, particularly on boards of directors in this case of research, led to companies outperforming.”

The paper started with the 501 stocks in the S&P 500 index as of Dec. 31, 2015. After eliminating companies that didn’t have a 10-year track record of performance, the paper looked at the remainiing 340 companies’ 2005 annual 10-K reports to identify the members of the board and their gender. Of those companies, 33 had zero women on the board, 307 had one or more women on the board and 34 had 25% or more women on the board.

The paper then compared three hypothetical portfolios based on gender representation on boards: zero women on boards vs. one or more women on boards vs. 25% women on boards. The portfolio of companies with one or more women on boards outperformed the portfolio with zero women on the board (9.46% over 10 years vs. 8.77% over 10 years). And, companies with 25% or more women on the board had even more superior performance (10.29% over 10 years).

As Mestayer points out, performance is often questioned when it comes to responsible investing or impact investing.

“Many times when you’re in the responsible investing arena, people assume that you’re not going to get very good investment returns but you can support a cause,” she told ThinkAdvisor. “We are really turning that on its head and demonstrating that financial returns do not need to take a back seat to supporting something which is socially beneficial. That, in fact, this is a smart investment.”

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