Gender Metrics Strategy
Happy Anniversary!
Three years ago a client of mine insisted that she wanted to direct her capital to create a world that was more equitable and safer for women and girls.
She insisted that included her public equity strategy as well as her philanthropic and venture capital deployments.
The more we discussed it, the more obvious it became:
We know that biodiversity makes for stronger and healthier ecosystems….
We rotate crops because over farming one crop depletes the soil of nutrients….
We know that “eating the rainbow” gives us the best opportunity to obtain the large variety of nutrients we need for a healthy body….
So we hypothesized that a more diverse company may perform better than a less diverse company. Turns out, there’s is research substantiating this hypothesis.
In 2015 McKinsey published Why Diversity Matters, which found that companies in the top quartile of gender diversity on executive teams were 21% more likely to outperform profitability and 27% more likely to have superior value creation.
And in the 10th anniversary of this research, the 2023 Diversity Matters Even More report they found that the top quartile outperformed the bottom by 39%.
So we incorporated this data into a public equity strategy 3 years ago.
With the universe of stocks, roughly 5000, we applied the following filters:
Eliminated companies with 10% or more in revenue derived from countries that are unfriendly towards women in the Women, Peace & Security Index
Eliminated companies that we know force arbitration for sexual harassment
Eliminated companies with no women on the board
Eliminated companies with low diversity on the board and no women in executive leadership
Eliminated companies with low Diversity Score based on MITs Culture 500 reviews
Eliminated companies with low LGBTQIA+ scores
Eliminated companies with severe discrimination violations
Then we took the companies through our rigorous financial screens to look for things like this:
Those that have improving fundamentals and valuations or are positioned to break out higher
Those that are in and are likely to stay in a stable uptrend
Those that are staying in a tight trading range, but are paying an attractive dividend
Those that have dropped significantly, have much improved valuations and anticipated to move higher over the long term
And finally, we score companies based on the blend of 4 factors:
Percent of women on boards
Percent of women in executive leadership
Diversity score (from Culture 500)
Median wage (ratio between CEO and Median wage of employees)
And to celebrate our anniversary we are proud to announce that this strategy has performed as expected. Since inception, the strategy has outperformed its benchmark 2 of 3 years since inception.
We look forward to continued development of this strategy as well as researching other ways we can incorporate the world we desire to be expressed into all the ways we direct our capital.
