A handful of exchange-traded funds on both sides of the border are capitalizing on the perceived investor need for investments chosen through the lens of gender diversity or equity. Whether these prove to deliver good returns or are merely the latest marketing gimmick remains to be seen. It wouldn’t be the first time the fund industry dazzled with a bit of clever marketing and investors should take care to mix up good intentions with sound portfolio strategy.
The ETFs sport stock market ticker symbols like HERS and SHE. HERS is the TSX ticker for the Evolve North American Gender Diversity Index ETF. Billed as “Canada’s first Gender Diversity ETF,” the ETF was listed on Sept. 20, 2017 and is available in hedged and unhedged versions.
Despite that billing, HERS is predominately in the U.S. market (87%), with only 13% in Canada. As of February, its top sector weightings, both are information technology and financials, both at 16%. The fund, which has an MER of 0.55%, is equal weighted: the biggest holding is Amazon.com at 1%; other top-ten holdings include Cisco, Intel and Bank of America. Just remember, a balanced portfolio is based on asset classes, not social goals, so keep that in mind in making the holdings in any of these ETFs work strategically with the rest of your money.
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In a similar vein, trading on the AMEX is SHE.A, the SSGA Gender Diversity ETF SPDR, Managed by State Street Global Advisors. It screens 1,000 U.S. companies and selects the top 10% that have a high ratio of women in senior leadership or board positions. SHE has attracted US$319 million in assets since its launch two years ago (March 2016), and sports a management fee of 0.2%.
Want a pure Canadian focus? On March 8th — International Women’s Day— trading of the new RBC Vision Women’s Leadership MSCI Canada Index ETF commenced. It’s focused on Canada, something RBC says investors wanted. No cute ticker symbol this time: it trades on the Aequitas NEO Exchange Inc. under the ticker RLDR. Managed by RBC Global Asset Management and backed by the Ontario Municipal Employees Retirement System (OMERS), the fund seeks to own Canadian companies that have “demonstrated commitment to gender diversity as part of their corporate social responsibility strategy.”
The ETF tracks the MSCI Canada IMI Women’s Leadership Select Index, which includes firms with at least three female board directors, or with boards that are at least 30% female. RBC says only 95 Canadian companies meet the requirements to be in the index. In addition to RBC itself, it owns Toronto-Dominion Bank, Suncor Energy Inc. and Enbridge Inc., according to MSCI. Management fee is 0.25 per cent.
So, apart from feeling good about the holdings, do these funds actually convey any financial benefits to investors? Some studies would suggest they do. In the case of RLDR, MSCI Inc. says companies that have both mostly male boards and “lagging” talent management practices saw growth of their employee productivity trail industry medians by an average of 1.2 percentage points.
MoneySense ETF All-stars panelist Mark Yamada, president and CEO of PUR Investing Inc., views the development positively in a general sense. “The OMERS-backed ETF is more interesting than SHE and HER —but not for the primary reason that people buy ETFs (to make money) or even the secondary reason (to add portfolio diversification, pardon the pun).”
The intent behind RLDR is to put pressure on companies not only to have at least two women in positions of influence but also to improve these numbers over time, Yamada says. “What gets measured gets attention.” That principle has driven the ESG (Environmental, Social and Governance) movement so far and has impacted proxies and corporate behaviour. “ETF sponsors like Blackrock and Vanguard are increasingly putting their weight behind social issues (like gun control for example).”
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Another MoneySense ETF All-stars panelist, Yves Rebetez, managing director of ETFInsight.ca, says “the ‘value’ angle these funds seek to tap into is the superior long-term performance of companies whose leadership and staff comprises a greater percentage of women in its ranks.” The gender lens is “another factor investors can seek to tap into to generate superior risk-adjusted returns.”
A hint of what to expect can be gleaned from the SHE fact sheet, which notes the fund is market-cap weighted, so “SHE’s performance shouldn’t depart radically from the broad market.” The ETF’s price/earnings ratio is 25.6, which is not inexpensive.
From a marketing perspective, these kinds of products may have particular appeal for female investors. The Economist reported this week that a Morgan Stanley survey found 84% of women are interested in “sustainable” investing, versus just 67% of men. As with funds that use environmental screens, those with a “gender lens” may appeal to a “small but growing group of investors [who] want to know what good or harm their money is doing to women.” And it concluded there is no evidence that a gender-lens means forgoing returns. On the contrary, the magazine said, “Several studies have shown that companies with women in senior management perform better than those without.”
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