Gender-based exchange-traded funds – which invest in companies with more women on their boards and in management – have produced steady returns in recent years, despite attracting limited investor interest.
Some industry experts believe these ETFs, which are relatively new, are set to gain traction as more women rise through the ranks of the corporate world and control more wealth.
A report for IPC Private Wealth by Strategic Insight found that, by 2026, women in Canada will control half of all accumulated wealth, up from one-third a decade earlier, representing about $900-billion in assets.
Many of those women also prefer socially responsible investments, the report says, which includes companies working to continuously improve their environmental, social and governance (ESG) performance, including gender diversity and inclusion.
Fate Saghir, senior vice-president and head of sustainable investing with Mackenzie Investments, says more women are demanding ESG be part of their portfolio, particularly as they oversee more wealth through higher-paying jobs, running their own business or receiving an inheritance.
“As that shift in wealth starts to happen … we will see more demand for these funds,” she says, “but more importantly, I think this gender-based integration needs to happen across all funds.”
The myth that investing in a gender-based ETF means sacrificing returns has mainly been dispelled, adds Ms. Saghir, whose firm also runs the Mackenzie Global Women’s Leadership ETF (MWMN-NE), launched in December, 2017. It has increased by about 17 per cent over the past year. (Performance data are total price return from Morningstar as of Oct. 6 close).
Canadian gender-based ETFs have generally performed in line with their benchmark, which is often the MSCI World Index, Ms. Saghir says. However, gender-based ETFs and mutual funds only total about $300-million in Canada and they haven’t “attracted as many flows as we would have liked.”
MWMN, for instance, has about $30-million in assets through a mix of Canadian, U.S. and international stocks including top holdings such as Microsoft Corp., Amazon.com Inc., the Estee Lauder Cos. and L’Oreal SA.
Many gender-based funds are still new, Ms. Saghir argues, and more advisers need to be educated about them so they can pass the knowledge on to investors who may be interested.
The criteria of most gender-based funds include having at least three women on their board of directors, a certain percentage of women in executive ranks, and a commitment to removing barriers to promotions, among other gender-promoting policies. While that constrains these investments, more companies are making changes to meet these criteria based on demand from retail and institutional investors.
But “this doesn’t happen overnight,” Ms. Saghir adds.
For example, she says that Amazon added more women to its senior leadership team and board in the past few years, which meant gender-based funds could add the high-flying stock to their portfolios.
“When we’re missing out on opportunities … the [fund] manager would engage directly with the company, and that’s what happened with Amazon,” she says.
Slowly, these funds are gaining traction as the issues around gender diversity, highlighted by the #MeToo movement in recent years, continue to make headlines.
“People are becoming more conscious about how they spend their money … including what companies they are buying from – and investing is the same thing,” says Jennifer So, a portfolio manager at BMO Asset Management and co-manager of the BMO Women In Leadership Fund ETF (WOMN-T), which also has a mutual fund option.
Ms. So says that awareness includes decisions to support companies that are doing their part to promote diversity and social justice and fight climate change.
”If those people put their money where their mouth is,” then more money will flow into this sector, she adds.
The BMO ETF, launched in May, 2018, has about $3.4-million assets with a mix of U.S. and Canadian equities including top holdings such as Brookfield Asset Management Inc., Microsoft, Amazon and the Royal Bank of Canada. The ETF is up about 20 per cent over the past year.
Flows to the ETF and mutual fund have been “steady and positive,” Ms. So says, although the identical mutual fund – launched in 2016 – has about $114-million.
She says companies are feeling pressure from investors who are demanding diversity at the top levels. Investors can also push for change, she adds. “Don’t underestimate the power of your wallet. Whether it’s a product that you buy or investing.”
Another Canadian gender-based ETF is the RBC Vision Women’s Leadership MSCI Canada Index (RLDR-NE), with assets of about $14.3-million in assets including holdings such as Shopify Inc., Royal Bank, Enbridge Inc. and Toronto-Dominion Bank. The ETF is up about 27 per cent over the past year.
There are also a few gender-based ETFs in the U.S., including the SSGA Gender Diversity ETF SPDR (SHE-A), with about US$282-million in assets and top holdings such as Salesforce.com Inc., the Walt Disney Co., Visa Inc. and PayPal Holdings Inc. The SHE ETF has increased by about 34 per cent over the past year.
Another U.S.-based fund is the Impact Shares YWCA Women’s Empowerment ETF (WOMN-A), with US$31.3-million in assets and top holdings such as Microsoft, Apple Inc. and Amazon. It has risen by about 38 per cent over the past year.
Tiffany Zhang, an analyst of ETFs and financial products research with National Bank Financial, says gender-based ETFs can be a bit more expensive than the typical index fund, but that they are more than a financial decision for many investors.
”You’re supporting positive social changes, so that’s another area to consider as well,” she says, alongside risk tolerance, investment time horizon and what else is in the portfolio.
And, with more institutional investors are investing through a “gender-diversity lens,” Ms. Zhang says she believes gender-based ETFs aren’t a fad.
”It’s really a trend that’s developing and since institutional investors are usually considered ‘smart money’ so, for retail investors, it’s not a bad decision to follow what they are doing at this moment,” she says.