Betting on women-led companies

Investing in women-led companies can generate returns. That is what Joseph F. Keefe, president and chief executive of Pax World Funds and Pax World Management, has set out to prove by teaming up with Sallie Krawcheck, head of women's network Ellevate and former Wall Street brokerage executive, to launch a new fund. Named the Pax Ellevate Global Women's Index Fund, the fund is managed by Pax Ellevate Management, a partnership between Pax World Management and Ellevate Asset Management, which Mr. Keefe also leads. The fund joins a host of vehicles aimed at women, including new exchange-traded notes launched by Barclays PLC. “There is a lot of interest in gender diversity, women in business leadership, women investors. There is more and more focus on women and wealth,” Mr. Keefe said. Here, he explains how the Pax Ellevate fund aims to take advantage of the growth that companies with diverse leadership may provide investors. InvestmentNews: What brought about the creation of the Pax Ellevate Global Women's Index Fund? Mr. Keefe: For many years, we had a fund called the Pax Global Women's Equality Fund. The premise was to invest in companies that are leaders when it comes to promoting and advancing women. It was an actively managed fund. Over the years,we reached the conclusion that the investment thesis could be better proved out in an indexed-based strategy. In an actively managed fund, the companies had to meet gender criteria. The portfolio manager is also looking at a host of other factors: price-to-earnings ratios, cash flow, sectors, tracking to the underlying index — all the things that an active portfolio manager would look at. Over time, we were concerned the contribution that the gender leadership would make to a portfolio couldn't really be proven out accurately through an actively managed strategy. We started looking at whether there were indexes out there, and found out that there weren't. We decided to build one. So we built an index of the highest-rated companies in the world in advancing women on their boards and in management. We were developing this idea for the changeover to an index-based strategy when I met Sallie Krawcheck, and we started talking about doing this together. InvestmentNews: What are the criteria for companies that are chosen? Mr. Keefe: We started with the MSCI World Index — approximately 1,600 companies. We narrowed that universe using MSCI ESG rankings — the environmental, social and governance rankings — and weeded out the lower-ranked companies when it comes to ESG characteristics. That reduced the universe from 1,600 companies to 900-something companies. Then we took those companies and searched for those that have the highest number of women on boards and the highest number of women in management. We also looked at other factors: Do you have a woman chief executive officer or a chief financial officer? Are they signatories to the United Nations Women's Empowerment Principles? Those are weighted a little less; the largest weightings are women on boards and in management. We ranked those 900 companies according to their gender diversity and took the top 400 — 406, really — and constituted the index. The fund invests in those 406 companies. InvestmentNews: How is this fund different from other women-focused investments that are currently in the market? Mr. Keefe: The big difference between this and an actively managed fund is that this is really a global-broad-market index-based product. We believe it's a fund that can be a core holding in any investor's portfolio. It's thematic in a sense: It focuses on women's leadership. The companies in the fund are Coca-Cola, General Electric, Bristol-Myers Squibb, Aetna, Barclays Africa Group Ltd. and Boston Scientific. These are blue-chip global companies, and it's broadly diversified. It's very different from our actively managed fund that had about 70 to 75 holdings at any one time, and it's a broad-market equity fund. Barclays came out with a similar product. Theirs is based on an index they had built, a narrower index of about 80-something companies, and it is an ETN as opposed to a mutual fund. But it's a similar idea: an effort to invest in companies that are distinguishing themselves vis a vis their peers in terms of gender diversity in their leadership. InvestmentNews: How do you measure the success of this fund? Mr. Keefe: This fund over time, we believe, can outperform. The reason would be because the substantial body of research suggests where women are better represented in corporate leadership — on the board or in management — those companies tend to perform better. That is the advantage that gender diversity brings. The fact that diverse groups make better decisions than non-diverse groups over time will play out. We will not only track closer to MSCI World, but we hope to outperform. InvestmentNews: What does this release and others that are women-centric mean for the female investor? Mr. Keefe: Women investors look at investing slightly differently than men do. Research suggests women are more inclined to want to align their investments with their values. Women would prefer to invest in companies with diverse leadership teams. They know that having such teams at companies is not only the right thing to do, but the smart thing to do, and that companies can perform better with diverse leadership teams. There's also a fair amount of research suggesting younger investors, Millennials, want their investments more aligned with their values and want to invest in companies that are making a positive difference in the world. By advancing women, they're not only better companies and better long-term investments, but they're advancing important policy objectives. InvestmentNews: Have you heard feedback on the fund from advisers? Mr. Keefe: We're finding that a lot of advisers, both male and female, like the idea because they've seen some of the research suggesting companies do perform better when they have diverse teams. Since we launched on June 4, we've had inflows every day. It's a bit of a cliché, but we believe this is an investment idea whose time has come, and the response we received so far in the market place underscores that.