New ETF bets on companies led by women

Asset manager Hypatia Capital is hoping to ride a wave of research pointing to the strength of companies with women in top leadership positions.

The Hypatia Women CEO ETF (WCEO), which debuts Monday, is an actively managed strategy that aims to capture performance alpha by investing in companies with female executives and significant female representation on boards of directors.

The ETF is expected to generally follow the Hypatia Women CEO Index, which tracks female-led companies with market capitalizations of at least $500 million.

Part of the case being made for investing in companies led by women reflects the premise that it's more difficult for women to reach the top executive ranks and therefore female leaders are more likely to possess exceptional leadership and management skills.

“Women who are able to make it into CEO roles have to be much better than their male counterparts,” said Deborah Fuhr, founder of research firm ETFGI.

“The thesis behind it seems to be supported by more and more research,” Fuhr said. “This product plays into a theme of looking at the way ESG and diversity and equity is growing in importance. I think many retail investors will understand this.”

A 2022 study by McKinsey & Co. showed that while some progress is being made, women are still underrepresented in the ranks of top management.

According to the report, women occupy 26% of C-suite positions, which is up from 20% in 2017. The issue is that white men still fill 61% of C-suite level positions.

The report cited a “broken rung” in the ladder toward senior leadership.

“For every 100 men promoted from entry level to manager, only 87 women are promoted, and only 82 women of color are promoted,” the report states. “As a result, men significantly outnumber women at the manager level, and women can never catch up. There are simply too few women to promote into senior leadership positions.”

The WCEO fund is far from the first attempt to the tap into the skills and expertise of women.

“This new ETF follows in the footsteps of the SPDR MSCI Gender Diversity ETF (SHE) that has faced some challenges to gathering assets,” said Todd Rosenbluth, head of research at VettaFi.

“While demand for ESG ETFs slowed in 2022, some investors have strong conviction in the importance of female leadership,” Rosenbluth added

Launched in 2016, SHE has grown to just $207 million. The ETF is up 2% so far this year but lost almost 22% last year.

That compares to the S&P 500 Index, which is up 1.5% this year and lost 18% last year.

The Impact Shares YWCA Women’s Empowerment ETF (WOMN) is another example of a strategy tapping into the same general theme without much success so far. Launched in 2018, WOMN has grown to just $33 million. The fund is up 2.3% this year after declining by 18% last year.