In a Financial Times article on Feb 25, 2021, “Gender funds collectively underperform the wider market, data show……”, the article writes: While Morningstar found assets in active and passive gender funds — which select companies according to metrics such as the proportion of women in leadership and the adoption of female-friendly policies such as flexible working — more than quadrupled to $3bn globally over the three years to the end of January, they collectively underperformed their respective wider capitalisation-weighted benchmarks such as the S&P 500. “Just seven of the 21 gender strategies we have identified in our global database survived and outperformed their respective benchmarks in 2020,” said Kenneth Lamont, senior fund analyst for passive funds research at Morningstar Europe. “On average these funds, which adopt a range of approaches and target different geographic areas lagged their benchmarks by 2.4 percentage points over the year,” he added. The performance has been in marked contrast to the claims often made when the products launched. For example, the SPDR SSGA Gender Diversity Index ETF (SHE), cites research by index provider MSCI that says it found a “36.4 per cent higher return on equity for companies with strong female leadership compared to companies without a critical mass of women at the top”. However, Morningstar research shows SHE has lagged the S&P 500 by 1.7 percentage points on an annualised basis since its inception in 2016. Diana van Maasdijk, chief executive of Equileap, the most widely used provider of investment data on gender equality in the workplace, said the calculations by Morningstar were “not 100 per cent accurate” because Morningstar had measured the funds’ performance against broad cap-weighted indices, whereas gender lens indices tended to be equal weighted. When compared to equal-weighted indices from 2011 to 2020, Equileap indices outperformed “systematically”, Equileap said. Van Maasdijk pointed to Morningstar’s additional findings that the funds were particularly underweight in technology stocks compared to their wider cap-weighted benchmarks. “Looking at the market now, [gender lens investing] represents an interesting way to diversify one's portfolio, in particular in the United States. The S&P 500’s performance has indeed mostly been driven by a handful of tech giants, while gender equality indices are significantly more diversified,” van Maasdijk said. (The original article is edited to reduce length). 

Question: From the article, it appears that Morningstar researchers and Diana van Maasdijk disagree with the performance of gender funds. Discuss why they arrive at different conclusions and their philosophy behind the choice of benchmarks. How do you use knowledge of this module and make further analysis on risks and relative performance for gender funds?

Answer rating: 100% (QA)

There are a few potential reasons why the Morning star researchers and Diana van Ma as d ijk arrive ... View the full answer