Diversity of thinking leads to better decision making and greater outcomes in all fields of life, and the asset management business is no exception.
Research findings show gender diverse teams perform better than the typical male only teams, and that women are at least as good as managing funds. In fact, there is evidence they outperform men.
Last year’s Morningstar study on US mutual funds indicates that “an investor who picks a fund based solely on the manager’s gender could see better results with all-female fund teams in both equity and fixed-income asset classes”.
In European equities, female managers achieve superior results, relative to men, and are also better at avoiding the worst results.
Indeed, twenty per cent of the top 10 best-performing European equity funds have a female fund manager, while none of the bottom 10 funds are managed by women, according to Morningstar data released earlier this year. This is a success, given that only 14 per cent of 329 European equity funds have at least one female fund manager. These are funds domiciled in Luxembourg and Ireland, with at least a three-year track record and sourced from 156 different asset managers.
This data suggests that funds could improve performance by increasing the team’s gender diversity. Yet just 1,725 of the 16,040 active fund managers around the world are women, accounting for less than 11 per cent, according to Citywire. And the proportion of women working in the industry has barely changed over the past four years.
In general, diversity does not yet feature in fund selectors’ quantitative screening processes, but things are starting to change.
“We do look at diversity and it is broader than gender. It is diversity of thought, and is part of our investment process,” says Cara Williams, global leader, financial intermediaries and family offices, and global wealth leader at Mercer.
When meeting with an asset manager, it important to understand who is part of the team and what voice they have, and to make sure that diversity is not just a “check the box exercise”, she adds. “Anecdotally, we have seen that portfolio management teams that can clearly articulate a diversity strategy are outperforming their colleagues.”
Diversity is becoming a “must do” especially for institutional investors, and Mercer’s ESG rating takes this factor into account. Institutional clients tend to stay away from a management team that is too single minded, favouring one that is more diverse, given similar level of performance. Investors, indeed, will never choose diversity over performance.
Assessing the level of diversity of a portfolio management team is part of the qualitative analysis carried out by Italian asset manager Eurizon Capital, and it may influence fund selection.
“Gender, geographically or age diverse teams, are on average more robust, they are able to explore all different viewpoints, and give me more confidence,” says Silvia Tenconi, fund analyst and portfolio manager, multimanager investments and unit linked team, at Eurizon Capital.
Experience in the field also provides guidance. During her 15 years’ career as fund analyst, Ms Tenconi has noticed that, in general, women are very good at managing high yield funds, as they tend to be more cautious. However, on average, they are not great at managing US equity strategies.
The Italian firm had a negative experience with a US portfolio team of managers, all in their 60s and 70s, who failed to spot the growth potential of new energy technology. This episode may indicate it would pay off to include younger individuals in portfolio teams managing technology related funds.
Inclusivity and diversity are still the Holy Grail in asset management, but in an increasingly competitive industry, and in this low return environment, asset managers may get a considerable boost in fund performance by just reviewing their hiring policies.
Elisa Trovato is deputy editor of Professional Wealth Management. Follow her on Twitter @elisa_trovato
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