09/02/2014-Gender-Diverse Boards Draw Investors Advisers Say More Clients Want to Put Money in Companies That Promote Women

Some investors have found a new cause: promoting a bigger role for women on corporate boards and in corner offices.
"We are seeing more demand for values-based investments that use a gender lens," says Jackie Vander Brug, senior vice president at U.S. Trust's portfolio analytics, consulting and institutional group. "We're seeing a set of folks saying, 'These are my values, this is the world I want to live in.' They are saying, 'Why wouldn't we take this into account?' "
Advisers who say this is a viable investment strategy cite several studies, including research by Credit Suisse Group AG and Catalyst—a nonprofit dedicated to expanding opportunities for women in business—that have found a positive link between female board representation and company performance.
But others warn that investors who limit their investment options this way risk missing out on better returns available elsewhere.
Not Biting
Most so-called socially responsible, or socially conscious, investing is aimed at steering money away from the shares of companies that don't meet the investor's environmental or ethical standards. For instance, some people won't invest in tobacco companies, citing health concerns, or in oil companies because of worries about the impact of fossil fuels on the environment.
Jason Katz, a New York-based financial adviser with UBS Wealth Management Americas, says that last year, for the first time in his 20-year career, clients started asking him about diversity on corporate boards, particularly with respect to women.
The interest, he says, stems from the idea that if everyone has the same background, they may also have very similar viewpoints. The theory goes that diversity brings disruption and can lead to better ideas, he says.
As a result, he has become more conscious of the board makeup, as well as female representation in top management positions, at the companies in his clients' portfolios. However, he isn't ready to make the presence or absence of women in powerful positions the deciding factor in selecting investments.
"I'm putting much greater weighting on other criteria," he says. "There's not enough data to sink my teeth into" concerning the effect of gender diversity on companies' performance, he says.
The Studies
There is some data, though. One commonly cited study was conducted by the Credit Suisse Research Institute. The report, published in 2012, said that in the previous six years, the shares of companies with at least some female board representation outperformed those of companies with no women on the board.
For example, it found that for companies with market capitalization of more than $10 billion, the share prices of those with women board members outperformed the share prices of those without women board members by 26% over the six years. For smaller companies, the shares of those with women on the board outperformed the shares of those without women by 17%.
A study by Catalyst published in 2011 found that Fortune 500 companies with three or more female board members in at least four of five years significantly outperformed those with no female board members in at least four of five years. To measure performance, the study looked at return on sales, return on invested capital and return on equity.
Finding a Vehicle
One problem for those who want to focus their investing on gender-diverse companies is that there are very few products set up for that purpose. In the past year or so, though, some advisers have tried to fill that hole.
For instance, U.S. Trust launched the Women and Girls Equality Strategy last year. The firm examines companies in the Standard & Poor's 1500 index—which includes large-cap, midcap and small-cap companies—using several criteria, including what percentages of each company's board, management and workforce are female. Other criteria include whether employees have access to on-site child care.
U.S. Trust clients can invest in the strategy through specially managed accounts. Later this year, the strategy will be available to all Merrill Lynch clients. (U.S. Trust and Merrill Lynch & Co. are units of Bank of America Corp. )
The Women and Girls Equality Strategy currently has $5.9 million in client assets and returned 33% in 2013 net of fees, a U.S. Trust spokeswoman says. That matches the 33% gain in the S&P 1500 last year.
Meanwhile, Morgan Stanley Wealth Management created the Parity Portfolio, launched in December 2012, which holds between 20 and 30 companies that have a minimum of three women on their corporate boards. Morgan Stanley declined to provide the total of assets under management or performance for the Parity Portfolio.
"We have two clear objectives," says Eve Ellis, a New York-based Morgan Stanley financial adviser and co-founder of the portfolio. "One is to make money for investors and the other is to make a social impact by getting more women on boards."
Ms. Ellis says she realizes there will be some detractors because of concerns about the limitations on the portfolio's investment options, but the studies that have been done give her confidence in the strategy. "To me the research is there that shows more-diverse boards have stronger financials," she says. "Why are companies having such a hard time embracing something when the evidence is there?"

Source: Wall Street Journal