It’s not always easy to work out which shares to buy and which to avoid like. Good research takes time and shortcuts can be costly.
So, claims that investing my money in companies supporting gender diversity could deliver higher returns and lower volatility are interesting. As a Foolish investor, I’m keen to see whether gender diversity can potentially can somehow make certain stocks more investible.
The investment industry is rife with bold claims though. Identifying a truly credible source is often half the battle. Making headline-grabbing claims is easy – but is the data there to back up the story?
Given the opportunity to interview Suzanne Biegel, co-founder of GenderSmart Investing, I was intrigued to learn from someone with serious expertise.
And importantly, to find out whether this approach could help improve my portfolio… or not.
What does supporting gender diversity mean in investing?
Supporting gender diversity in investing, according to Suzanne, means “recognising that gender equity is material to financial, business, and social outcomes, and acting on that in portfolios.”.
She went on to explain in more detail: “Gender-smart investors, whether they are investing in public markets or private, bring an intentionality, a rigour, to how paying attention to gender can help to mitigate risk or identify opportunity. Both for lower volatility, for potential outperformance, and for addressing the key issues of our time.”
Sounds great, but how does it improve my awareness of which shares to buy?
What’s the evidence for diversity investing?
When asked about supporting evidence, Suzanne provided me with many sources, but the piece that caught my eye the most was research from Morgan Stanley, claiming “a more diverse workforce, as represented by women across all levels of the organisation, is correlated with higher average returns”. The research claimed “companies that had taken a holistic approach toward equal representation outperformed their less diverse peers by 3.1% per year“.
OK, that’s not a huge figure, but it’s high enough to make a difference.
Additionally, Suzanne said research has shown that “greater gender diversity on boards is also a predictor of lower stock price volatility. EBIT margins of organisations with diverse management teams are 9% higher than those of organisations with below-average diversity.”
She acknowledged that just because a more diverse company might do better, doesn’t mean its diversity is causing that outperformance. But the link does sound like something to note when looking for shares to buy.
Diversity and the FTSE 100
There’s no single source of information about which stocks are the diversity winners and losers in the FTSE 100. So I decided to use a simple board diversity metric. And it uncovered some interesting results.
The 2021 Spencer Stuart Board Diversity Index had Ocado Group as one of the worst diversity performers. Interestingly, it’s also one of this year’s worst share price performers in the Footsie.
Conversely, M&G was one of the best diversity performers in the report. And it’s up in the top 20 FTSE 100 performers this year.
So it seems, there’s something there to prompt further research on my part when deciding which shares I should buy. I’d want to review traditional financial metrics first, of course. But I think diversity is worth thinking more about. After all, helping others while helping myself – I think that’s good investing.