Are women the next best investors?

Grace O'Brien of AKQA

The Pink Chip index aims to highlight how women-led companies are doing in the stock market.

The theme for International Women’s Day this year is focusing on inspiring inclusion and investing in women, and it couldn’t be more timely for the financial advice industry.

A recent report by moomoo found that more women are planning to invest more in the future, despite facing challenges such as limited capital, fear of unknown risks, and limited experience and knowledge of investing.

Notably, although women’s financial confidence has been on the rise over the past few years, the survey results revealed a relatively low level of investment confidence among for women.

Grace O’Brien, creative director at AKQA, a digital design and innovation agency, who’s also a trained economist, says one of the reasons is that women aren’t encouraged to take risks and gamble with their money.

“They’re way more likely, for example, to put it in high-yield savings than to invest,” she says.

Finance influencers who target women on Instagram, O’Brien added, provide advice like, “Don’t put your money in savings, but put it in a low-cost index fund that has 8 percent returns, and you don’t have to look at it, and it’s not super risky.”

“There’s this sort of narrative or culture around being risk-averse, and I think it’s changing,” she says. “I think it just comes down to education for women and young girls in schools. You’re not taught what investing is, or how to manage your money, compared to men, who are more likely to go to business school or study economics or something, but that’s changing as well, though.”

O’Brien and her team, who are based at the company’s Amsterdam location, have launched the Pink Chip index for women, which aims to highlight how women-led companies are doing in the market. The index is a collaboration with Thematic, a Silicon Valley startup.

Pink Chip takes all the thousands of listed companies in the US and narrows that down to the companies that are led by women – or whose CEO identifies as female – and then looks at their three-year growth rate.

Companies that have a compounding annual growth rate of 8 percent are the ones that ultimately make it into the index.

The reason the index doesn’t have gender as the sole lens is because of something called the “glass cliff effect,” O’Brien says.

“There’s a bit of research that suggests that women get appointed to CEO when a firm is in crisis, and that’s called a caretaker CEO,” she explains. “Women will come on board when stuff isn’t going too well, and they’ll stay for about two to three years. Then when things are fine, they step down and get replaced by a man, it’s a documented sort of phenomena.

“We wanted to put tenure and company growth in as a way to control that,” O’Brien added. “We also just limit the index to companies with a market cap of $2 billion. Once you apply all of that, there’s only 44 companies that make it. Only 6 percent of CEOs globally are women, so the pool already is really small.”

As for why people don’t invest in females more, she explains it’s because women founders and executives receive less venture capital and markets tend to divest from companies that appoint women.

“Bias is a big reason behind that,” O’Brien added. “It’s all proof as to why investing in women is so critical, because I think the more women you see out there who are starting businesses, running businesses… you can’t invest or support something you don’t see, you need to see yourself in it. That’s why it’s so important.”

In her experience and in speaking with women who are in CEO positions, O’Brien says women’s success comes down “to their ability to hire effectively, to build relationships and to support and retain employees.

“And there is a belief that maybe women are better at those skills than men are,” she added.

O’Brien cited estimates that if women’s economic power were unlocked, meaning not only investing in them, but getting more women working and investing, GDP would be boosted by 20 percent.

“It’s huge,” she said. “It’s an untapped economic force, for sure.”