Recent data analysis by The Globe and Mail reveals that just 4 per cent of companies on the S&P/TSX Composite Index have a female chief executive officer and more than half of the companies on the same index have no women top executives at all. And much to the chagrin of Canadians looking to invest in companies that promote gender equity and diversity, there are only a few options from which to choose.
Canada currently has five homegrown funds – four mutual funds and one exchange-traded fund (ETF) – with a gender-lens investing focus, according to Morningstar Canada. The management expense ratios range from about 1.5 per cent to 2.6 per cent for the Class A mutual funds offered by BMO Global Asset Management (BMO Women in Leadership Fund), Desjardins Global Asset Management (Global Equity Desjardins SocieTerra Diversity Fund), Fidelity Investments Canada ULC (Fidelity Women’s Leadership Fund) and Mackenzie Investments (Mackenzie Global Women’s Leadership Fund) and 0.29 per cent for the ETF offered by RBC Global Asset Management Inc. (RBC Vision Women’s Leadership MSCI Canada Index ETF).
These funds have varying strategies but, in general, each invests in companies committed to gender diversity and the advancement of women. The mutual funds have one-year returns ranging from about 10 per cent to 21 per cent as of Dec. 31, 2020, while the ETF has returned 6.5 per cent. That compares to a total return of 5.6 per cent for the S&P/TSX Composite Index and 16.3 for the S&P 500 over the same period, according to Morningstar data.
Gender-lens investing checks off both the social and governance elements of environmental, social and governance (ESG) investing that has gained momentum over the past year, in particular. A growing body of research shows ESG investments tend to outperform their peers in bear markets, including during the downturn that took place in early 2020.
While Canadian asset manager Evolve Funds Group Inc. closed its pioneering gender-diversity ETF (Evolve North American Gender Diversity Index ETF) early last year amid investor apathy, some surveys suggest there is still interest in gender-lens investing.
A 2020 Responsible Investment Association investor opinion survey shows 73 per cent of respondents want a portion of their portfolio to be invested in organizations that provide opportunities for the advancement of women and diverse groups. It also showed 72 per cent of respondents want their fund manager to engage with Canadian corporations to encourage more diversity in leadership. What’s more, the survey says 85 per cent of respondents said Canadian companies should provide more leadership opportunities to qualified women and people of diverse backgrounds.
Advisors considering offering gender-lens investing strategies to clients should be transparent about the pros and cons, says Steve Foerster, a professor of finance at Western University’s Ivey Business School.
For one, he says the fees for some of the funds are high relative to other funds and may not always outperform. He also cited a study from the Wharton School of the University of Pennsylvania showing companies don’t perform better or worse with more women on their boards of directors. However, Mr. Foerster says investors may not mind paying slightly higher fees and some underperformance if they’re focused instead on the responsible investment approach.
“[Advisors should] get to know their clients and really understand what they’re looking for, and if [gender-lens investing] is something that’s important to them,” Mr. Foerster says.
However, Melanie Adams, vice-president and head of corporate governance and responsible investment at RBC Global Asset Management, says advisors should seek out more information on gender-lens investments “and don’t make the assumption you’re trading off performance.”
For example, RBC Vision Women’s Leadership MSCI Canada Index ETF (RLDR-NE) returned 20 per cent in 2019, its first full year since being launched in March 2018. The fund invests in Canadian companies “that have demonstrated commitment to gender diversity as part of their corporate social responsibility strategy,” with top holdings including Shopify Inc. (SHOP-T), Royal Bank of Canada (RY-T), Toronto-Dominion Bank (TD-T) and Canadian National Railway Co. (CNR-T).
Ms. Adams says more investors are aligned with the fund’s mandate of investing in companies that have at least 30 per cent of women on their boards as a way to ensure diversity of thought and leadership.
“You have the right risk appetite in place and a more effective board,” she says.
Gender-lens investing is also a social good because it promotes women and is a more true reflection of society, she adds.
Despite the financial and social benefits, Ms. Adams acknowledges gender-lens investing hasn’t gained as much traction as she and others behind the investment theme had hoped for, so far, which she believes is partly due to a lack of awareness across the advisor community.
“I think there’s a little bit of advisor education and client education that could be done … around what it could look like and what’s available to them,” she says.
Ms. Adams also believes gender-lens investing will continue to evolve to include diversity, in general, which should also help create awareness and boost interest longer term.
Jennifer So, portfolio manager of BMO Women in Leadership Fund, says the fund’s objective is to invest in North American companies that promote a gender-diverse leadership environment, including top holdings such as Brookfield Asset Management Inc. (BAM-A-T), Amazon.com Inc. (AMZN-Q) and Microsoft Corp. (MSFT-Q).
Ms. So says the fund also focuses on companies that are developing a pipeline of female talent and addressing barriers to advancement for women. For example, she cites the fund’s investment in Adobe Systems Inc. (ADBE-Q) because of the company’s “opportunity parity” program that pushes for advancement across demographic groups.
Ms. So believes advisors should be talking to clients – particularly younger ones who tend to have a stronger interest in ESG investment themes – about their potential interest in gender-lens investing.
“Use it as a stepping stone to having a deeper conversation in terms of financials and building wealth,” she says. “They’ve gone out and protested, and this is a way for them put their money where their mouth is.”
Ms. So also sees the theme evolving beyond gender and encourages advisors to stay on top of the issues on behalf of their clients.
“Just start having the conversation,” she says. “If you aren’t talking about it, your competitors are.”