Many advisors have noted that their female clients have become increasingly concerned about the social impact they can make with their investments. Women are expressing an interest in using their dollars to effect change, particularly for other women. And this type of impact investing, or investing with a socially or environmentally responsible focus, continues to take root as a viable and desirable investment strategy.
Gender lens investing, a subset of impact investing, involves actively investing in businesses that benefit women. This might mean building a portfolio with women-owned firms, selecting companies with a sizeable number of women on the board or in the executive suite or choosing to invest in businesses that promote workplace equity and inclusivity.
Jeff Finkelman, research associate of impact investments at Athena Capital Advisors, has noted a growing interest in gender lens investing by the firm’s female clients and says that such an approach can accomplish a social purpose while providing strong financial returns for retirement.
The old argument
There’s certainly the argument that a gender lens investment strategy might not be as financially advantageous as a more traditional investment approach. But Finkelman says the data don’t necessarily bear it out. Returns and gender lens investing needn’t be mutually exclusive.
“You can certainly make money with gender lens investing,” he says. “Yes, there are fewer companies that you might invest in.” But as with any investment strategy, the onus is on the advisor to do their homework.
“The advisor’s expertise is essential,” says Finkelman. Advisors who are pursuing a gender lens investment strategy should find female company leaders, for instance, who can generate risk-adjusted returns just like their peers. But the core exposure remains U.S. large cap.
There’s also an assumption that female-led companies bring in less money, making them a poor pick for a portfolio. But the data seem to indicate that more diverse organizations actually perform better. According to research from Morgan Stanley, “high gender diversity companies have delivered slightly better returns, with lower volatility, compared with their low diversity or sector peers, and they have moderately outperformed on average in the past five years.”
The impact of impact investing
For advisors who may not be sold on the idea of gender lens investing, or impact investing in general, the numbers indicate that the financial community is taking note. According to US SIF, The Forum for Sustainable and Responsible Investment, “money managers and financial institutions now incorporate environmental, social and governance (ESG) issues into their investment research and analysis across portfolios that totaled $8.10 trillion at the start of 2016, a 68 percent increase from 2014.”
Diversity and equal employment opportunity factored in the top 10 of environmental, social and governance issues considered by institutional investors. US SIF found that investment funds directed to diversity and equal employment opportunity almost tripled, in number and assets between 2005 and 2014, with assets totaling $578 billion in 2014.
In all, gender lens investing is certainly a strategy worth looking into, especially with female clients who might have an interest.