Blending Mars, Venus can energize a fund

Appears that mixed-gender portfolio management teams tend to generate better performance

Nov 22, 2015 @ 12:01 am

By Jeff Benjamin

If there's one thing that can definitively be said about female mutual fund managers it is that they are rare. The financial services industry has always been represented mostly by men, but the portfolio management area stands out as an extreme example of gender imbalance. And while even the strongest proponents of improved gender equality are not yet proposing investment screens based on the sex of a fund manager, the limited data available suggest gender diversity can produce better performance results.

An analysis earlier this year by Morningstar Inc. found that, across broad categories, mutual funds managed by both women and men averaged equal or better returns than funds managed singularly by women or men.

“There are all kinds of interesting theories about why it is the case, but it appears that mixed-gender [portfolio management] teams tend to generate better performance,” said Laura Lutton, a Morningstar analyst and one of the founding members of the company's women's initiative, which is designed to look at ways to help advance the careers of women at Morningstar.

“One of the main takeaways of the research was that the more diverse the ideas, the better you will do,” she added. “I think that's a call for more money management firms to look at their own diversity efforts.”

(Related: InvestmentNews' Women to Watch list honoring women in advice)

Granted, the study samples in the Morningstar report are small because there aren't that many women managing mutual funds.

Of the 7,700 named portfolio managers of U.S. open-end mutual funds, just 699, or 9.4%, are women.

The imbalance is even more extreme when viewed from the perspective of assets managed by women, which shows female fund managers exclusively run just 1.9% of the more than $12.6 trillion in mutual fund assets.

In some categories, the numbers don't even produce performance comparisons. For both allocation and alternative fund categories, for example, there are no female managers with 10-year track records.

But an analysis of all U.S. open-end mutual funds shows that the average three-year category rank of funds managed by women is the 50th percentile, just behind the 49th-percentile rank for both funds managed by men and those managed by both genders.

The average five-year category percentile ranks are 47% for funds managed by both men and women, 49% for men and 58% for women. The average 10-year category rank is 44th percentile for funds with male and female managers working together, 47th for funds managed by men, and 57th for funds managed by women.

Across the asset management industry there are lots of examples of efforts to increase gender diversity.

At The Vanguard Group, veteran portfolio manager Pamela Tynan works on the company's Women in Leadership Success initiative, which started at the corporate level and has been expended to include the investment management group.

“There are challenges in bringing in more diverse candidates, because sometimes women don't necessarily apply, or they don't feel they will be successful,” Ms. Tynan said. “Women are often concerned with what their success rate might be because they don't have a lot of role models.”

Ms. Tynan, who has worked at Vanguard for 33 years, including 25 as a portfolio manager, added that some of the roadblocks women face involve general personality traits common in women and men.

“Women do have a tendency to opt out, because they feel they don't have all the qualifications needed,” she said. “If there are 10 requirements listed for a posted job opening, the female might not apply because she doesn't think she has all the qualifications, but the male will say, "I've got five of them, so I'm good to go.'”

Michelle Picard, a portfolio manager at Henderson Geneva Capital Management, leads ongoing efforts to bring more women into the portfolio management ranks.

“I certainly have been aware that there aren't that many women portfolio managers, but I don't know what part of it is self-selecting because there are not enough role models in place versus some other factors,” she said. “A few years ago we started an internship program, and I'm very focused on having equal numbers of men and women on that team, but it takes extra effort and commitment.”

Ms. Picard is among those who believe the industry is missing a real opportunity by not making the extra effort to improve diversity in the asset management ranks.

“We've always valued diversity of opinion because we believe that leads to a stronger team,” she said.

But when it comes to portfolio management, women appear to be lagging way behind some other professions. For example, women make up 33% of lawyers, 37% of doctors, and 63% of accountants and auditors.

“I'm actually surprised that there aren't more women in the asset management field, when you consider that performance is rewarded so objectively,” said Bonnie Baha, who manages $4 billion at DoubleLine Capital.

On the issue of balancing work and family life, Ms. Baha said culture matters.

“I think the tone has to be set at the top, and there is so much more sensitivity to that these days,” she said. “Here at DoubleLine, [founder] Jeffrey Gundlach sets the tone by doing things like sometimes leaving early to go spend some time with his daughter.”

Beyond generalizations, it would be difficult to quantify what makes a female portfolio manager better or worse than a male one. But generalizations, and even comments bordering on stereotypes, are plentiful.

“What matters most are the skills and capabilities of the individual, but women are probably a little more comfortable being intuitive, and sometimes that's your best investment tool,” Ms. Baha said. “Men have a tendency to look at everything analytically; letting math do your work for you.”

She credits her intuition for the decision to get out of Lehman Brothers debt before it collapsed during the financial crisis.

“What tipped me off was finding out the Fed was trying to engineer a sale of Lehman Brothers to a foreign bank, not a domestic bank,” she said. “I figured that was a bad sign, but if I had only considered the financials, I would not have sold it.”

The scarcity of female portfolio managers makes using their funds somewhat difficult for advisers.

As a financial adviser, Kristi Sullivan, owner of Sullivan Financial Planning, said screening funds for female portfolio managers “would limit me too much.”

“But I do see a lot of studies that show women, in general, are better investors because they don't react as much to market gyrations, and they are more likely to stick to a plan because they don't feel like they have to beat their neighbors,” she said.

Tish Gray, wealth planning adviser at Sagemark Consulting, a division of Lincoln Financial Advisors, has a few female clients who will only work with female teams for all their professional relationships.

Ms. Gray, who participates in Lincoln Financial' s Women Inspiring Supporting and Educating initiative, doesn't believe in going to extremes to work with female managers.

“I think the number of women fund managers should be increased and, everything being equal, I'd love to be able to give women my business. But I also want to give my clients the best investments they can get,” she said.

Lara Magnusen, portfolio manager and head portfolio strategist at Altegris, sees female portfolio managers as necessary to the success of a modern asset management firm. But she acknowledges that many women play a central role in their families.

“When I graduated from college in 1999 I never thought I'd be the only woman on an investment committee, or one of just a few women at investment conferences,” she said. “I haven't seen an evolution toward more women in this business, and I honestly don't see it getting any better.”

Ms. Magnusen, who has young children, said, “The only way to see more female participation as portfolio managers is to have sheer gumption by women, and I also think you need more organizations where you have that flexibility and support.”

The upshot is gender and race shouldn't factor in, she said.

"I wouldn't invest in a fund just because it was run by a woman,” Ms. Magnusen said.

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