Want to invest in companies that put more women at the top? A new mutual fund lets you.
Sallie Krawcheck, the owner of a professional women's network and a former high-profile Wall Street executive at Citi, Bank of America and Smith Barney, is partnering with the investment firm Pax World Management to launch an index fund that invests in companies that have high ratios of women in senior management or on their boards.
Numerous studies show companies with more diversity at the top tend to perform better over time, such as having higher returns on equity or lower volatility. "And yet, research has just been research," Krawcheck says.
"This index fund, by investing in the top 400 companies in the world for women - by per cent of women on the board [or] per cent of women in senior leadership teams - is a way of expressing that investment case."
The fund announcement comes as Krawcheck is relaunching the professional women's network 85 Broads, which she bought last year from former Goldman Sachs executive Janet Hanson. The organisation will now be called Ellevate Network. The rebranding comes with a new website and digital social network for its members.
Krawcheck came up with the name on her sofa after a run. "I was trying to think through something that would be indicative of gender, but also had a sense of forward motion to it."
The index fund, Pax World President Joe Keefe says, offers "a pure apples-to-apples comparison to actually measure and capture the investment return associated with gender leadership."
Index funds typically have lower fees than actively managed mutual funds, in which a manager picks the portfolio's holdings. The new fund's required initial investment is $1,000, putting it within reach of the everyday investor.
The fund will invest in more than 400 companies that are part of the Pax Global Women's Leadership Index. One top holding is PepsiCo, which has a female chief executive and five women on its 13-member board. Lockheed Martin, where 30 per cent of corporate officers (including the CEO) and 33 per cent of board members are women, is also a major investment.
Research shows that, on average, women make up about 20 per cent of board seats at Fortune 500 companies. And women hold just 14.6 per cent of executive officer positions, Catalyst says.
The fund's premise stems from research showing that having more women in leadership positions can lead to better financial performance. For instance, a 2012 Credit Suisse report on 2,360 global companies found that those with women directors outperformed those without female board members on measures such as return on equity, average growth and price/book value multiples.
Other studies have shown that having more women on boards leads to better-priced mergers and acquisitions and that business units with higher gender diversity also have better financial performance.
But Krawcheck's real "aha moment," she says, occurred when she was in a meeting with former Catalyst chief executive Ilene Lang, who was sharing research on how diverse teams outperform even more capable teams.
"I was like, 'Stop, what did you say? Say that again?' " Krawcheck says. "Probably because I grew up in industries where anything can be solved by raw intelligence, it stopped me dead in my tracks."
Does she worry that the fund will underperform, undermining the argument for it?
"That's a risk you always take," she says. "There's risk in anything you do that's worthwhile."
- Washington Post