International Women’s Day: why gender-focused strategies outperform


8 Mar 2023

Gender-based investing’s success last year appears not to be an isolated occurrence, finds Andrew Holt.

Gender-based investing’s success last year appears not to be an isolated occurrence, finds Andrew Holt.

Investment was a tough business last year, but backing companies that focused on gender diversity ironed out that negative trend, according to Morningstar’s gender-diversity indexes, which beat their broad-market equivalents.

In a difficult year for global equities, the Morningstar Developed Markets Gender Diversity index fell 16% in 2022, versus a 17.8% decline for its parent, the Morningstar Developed Markets Large-Mid Cap index.

The indexes target broad equity market segments, but with an emphasis on companies demonstrating a commitment to gender inclusion and equity.

In 2022, all but one of Morningstar’s gender-focused indexes outperformed their broad equity market equivalent.

For institutional investors looking at medium-term performance, these indexes also posted strong five-year returns.

But what was behind such a strong showing? Dan Lefkovitz, a strategist at Morningstar Indexes, offered an insight.

Highlighting the most geographically inclusive index variant, the Morningstar Developed Markets Gender Diversity index outperformance is owed to below-market exposure to the technology sector, which tends not to score well on gender criteria, and above-market exposure to energy and defensive sectors like healthcare and consumer defensive.

The same was true for the US equities-focused Women’s Empowerment index, among others.

Markedly, this trend was reversed for most ESG risk-based indexes.

Technology stocks tend to be favored in sustainable portfolios because they face relatively low levels of ESG-related risk. But tech was the market’s worst performing sector in 2022.

On the flipside, energy was by far the best performer. Carbon emissions typically mean energy stocks are underweighted or avoided altogether in sustainable portfolios.

A relatively lower exposure to energy helps explain why just 27% of Morningstar’s sustainability indexes outperformed in 2022.

But with the Morningstar Gender Diversity indexes posting strong five-year returns, what is behind this particular trend?

The longer-term story is more nuanced and includes a stock-specific angle, Lefkovitz said.

Some technology companies included in the indexes, such as Microsoft and Nvidia, have been key contributors to returns.

So too were companies across geographic and economic sectors, including Danish pharmaceutical Novo Nordisk and Japanese industrial behemoth Mitsui.

The argument for gender diversity spans equity and economics – values and value in the parlance of sustainable investing, said Lefkovitz, with equality of opportunity an obvious issue of social justice.

“Then there’s the notion that companies that create inclusive cultures are tapping into the labour force’s full talent pool while also benefitting from cognitive diversity, which has been linked to improved decision-making,” he added. “For many sustainable investors, gender-based investing is about both human rights and maximizing shareholder value.”


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