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“The value of a woman can never be underestimated by someone who does not understand her value.” – Gugu Mona gift.
“Mistaken.” -Morgan Stanley.
Since 2019, Morgan Stanley’s quantitative strategy team has published equity analysis that ranks companies based on gender equality. Known as the Holistic Equality and Representation Score, or HERS, the idea is to “help investors identify those companies that are leaders and laggards in gender diversity.”
Among academics, if not Financial Times commentators, it is not controversial to argue that corporate gender diversity is a good thing for reasons beyond basic human decency. Diverse teams make better decisions (Wooley et al., 2010). They are generally more innovative (Díaz-García et al.2013) while taking fewer silly risks (Chen et al., 2015). The more women a Fortune 500 company has on its board, the higher the average returns on equity, sales, and invested capital (Catalyst2011).
Do these positives translate into better share price performance? No. At least not recently. Stocks of developed-market companies with high diversity underperformed those with low diversity by 3.1 percent globally last year and lagged everywhere except Europe, according to Morgan Stanley:
In the long term, the strategy is maintained. Fair. Companies with high gender diversity outperformed companies with lower gender diversity by 1 percent annually from the beginning of 2011 to the end of 2023, the bank says. Only in Japan waking up means going bankrupt:
But 2023 was the second worst year for the screen since 2011:
The poor performance in 2020 is pretty easy to explain. Initial market turmoil during the pandemic was severe in sectors known for having more diverse workforces, including healthcare. So what went wrong in 2023?
Morgan Stanley suggests a combination of “growing negative sentiment” around diversity, equity and inclusion strategies, along with earnings clustering around the themes of generative AI and weight loss pills.
Novo Nordisk always stands out for being gender inclusive, although among the Mag7 only Apple is a perennial model. The sector view still shows HERS-rated US technology and Asian healthcare significantly underperforming their less diverse peers:
The job cuts may also have lowered some companies’ diversity scores, the bank’s team speculates. It is a theory that would fit with the evidence of a gender layoff gap and a tendency of bosses to expel employees that don’t look like them.
For investors who want to advance the cause of gender equality in a convenient but holistically meaningful way, several ETFs offer exposure to the topic. A cursory check suggests that since 2018 the class has underperformed the S&P 500 with the most famous example being “State Street.”fearless girlThe SPDR Gender Diversity ETF also underperforms the MSCI World.
ESG ETFs may have gone out of fashion since a mini boom in 2019. What is the purpose of grouping actions based on gender metrics (later? abstain from votes on gender pay gap) is still not obvious.
Still. Morgan Stanley’s biggest takeaway is that the business world is gradually becoming more equitable:
And will these trends be positive for share prices? Who cares.
Other readings
— The point of the State Street “fearless girl” statue (FTAV)
— A true ESG success story? (FTAV)
— Has the push for female equality gone too far? (FT; feel free to check if your comment on social engineering, natural order, identity politics and wokeness is already represented there before repeating it here)