Women manage only 2% of all assets, and the proportion of female portfolio managers fell to 9% from 10% between 2009 to 2015 — despite the fact that women managers outperform their male counterparts, according to Morningstar. What explains this situation?
A new book dives into this research (while being immensely readable): “Smart(er) Investing: How Academic Insights Propel the Savvy Investor,” by Elisabetta Basilico of Applied Quantitative Analysis and Tommi Johnsen of the University of Denver’s Reiman School of Finance (Palgrave MacMillian).
The book compiles investment ideas tied to recent studies and includes a chapter entitled “Women in Finance: What Does the Research Show?” in which the authors use a myriad of studies to reveal the differences between men and women in finance, where women excel in this field, and how firms can correct issues of imbalance.
One insight the chapter shares is that men are overconfident and trade excessively, while women are more risk averse. Studies have shown that men trade almost 45% more than women, and single men trade 64% more than single women.
Not surprisingly, trading costs for men have averaged 2.65% vs. 1.72% for women. Overconfidence in men can be detrimental to performance, studies have shown, but there is plenty of research suggesting that women are less confident about investment decisions than men, the authors write.
Another insight: Although there aren’t differences between men and female-managed funds in terms of performance and risk, investors prefer male fund managers. This could in turn cause mutual fund families to be “apprehensive about hiring female manager if they fear that investors will prefer male-managed funds.”
It’s safe to say women are underrepresented across the investment spectrum, in terms of portfolio managers as well as equity analysts.
This poor representation in the analysts’ community is odd, the authors say given research of 2 million forecasts issued by 18,292 analysts covering 21,107 stocks. The studies concluded that female equity analysts “have superior skill at forecasting earnings and the market apparently agrees,” according to the authors.
This research also found that women generally made relatively more optimistic forecasts and are less likely to be bearish than their male counterparts. Research on revised outlooks also was favorable for female analysts.
Old Boys Club?