Why it’s smart to invest in women-led companies
Maybe they’re just better managers
Adapted from a story by The Washington Post’s Jena McGregor.
Companies with a woman in the CEO or chairman role have performed far better than a major global index over the past eight years, according to an analysis by Scandinavia’s largest bank, Nordea. It studied nearly 11,000 companies globally.
The results, first reported by Bloomberg, found that on average, companies with a woman in either of those two top jobs at the end of the calendar year more than doubled the performance of the MSCI World Index in the following year.
Now some financial services companies are taking note, and they’ve been adding investment products that place bets on women-led firms.
Gender and corporate wellness
There’s a growing body of research aimed at examining whether gender diversity has an effect on corporate performance. Some studies show a link.
- The annualized return for female-led firms, based on an equal weighting, was 25 percent since 2009, compared with just 11 percent for the broader market.
- Credit Suisse, for example, has found that having a woman on the board was associated with better performance, and that having more female top managers was associated with higher returns on equity, valuations and payout of dividends, as well as better stock performance.
Other explanations
Other studies, meanwhile, have shown less clear links, with one study showing the stock price of Norwegian companies dropped after adding female directors to meet a mandate that 40 percent of the country’s corporate boards be female — the drop was attributed in part to less experienced directors.
Robert Naess, the portfolio manager at Nordea, suggests a few other possible explanation for the bank’s findings.
- One is that for whatever reason, women may tend to lead more of these less volatile companies. According to his numbers, about four percent of the companies had a female leader in the broader market, compared with nine percent of companies on an index that tracks these more stable firms.
- Another possibility, he said, is that analysts tended to have slightly lower earnings growth expectations for the companies in his data set with a woman at the helm — at an average of 7.4 percent, versus 9.7 percent for the broader market. Again, while the reason for that is unclear, analysts overshoot expectations frequently, he said. Because the actual average earnings growth is only about 5 percent a year, the women’s performance could be seen as less disappointing, which could lead to stronger stock performance.
In a follow-up email, Naess said the explanation could also simply be that the women were better managers.
“The simple interpretation of my calculations is to buy the companies with a female CEO/chair,” he wrote. “If you invested consistently in only companies with a female CEO/chair, then you would have done better than the market.”
