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“A woman’s value can never be undervalued by someone who does not understand her value.” — Gift Gugu Mona.
“Wrong.” — Morgan Stanley.
Since 2019, the quantitative strategy team at Morgan Stanley has been publishing a stock screen that grades companies by gender equality. Known as the Holistic Equal and Representation Score, or HERS, the idea is “to help investors identify those companies that are leaders and laggards on gender diversity.”
Among academics, if not FT commenters, it’s uncontroversial to argue that corporate gender diversity is a good thing for reasons beyond basic human decency. Diverse teams make better decisions (Wooley et al, 2010). They’re generally more innovative (Díaz-García et al, 2013) while taking fewer dumb risks (Chen et al, 2015). The more women a Fortune 500 company has on its board, the higher the average returns on equity, sales and invested capital (Catalyst, 2011).
Do these positives translate to better share price performance? No. At least not recently. Shares in developed market companies with high diversity underperformed those with low diversity by 3.1 per cent globally last year and were laggards everywhere except Europe, Morgan Stanley finds:
Long term, the strategy holds. Just. Companies with high gender diversity outperformed the less gender-diverse firms by 1 per cent per year from the start of 2011 to the end of 2023, the bank says. Only in Japan does woke mean broke:
But 2023 was the second-worst year for the screen since 2011:
Underperformance in 2020 is fairly easy to explain. Early pandemic market turmoil was severe in sectors known for having more diverse workforces including healthcare. So what went wrong in 2023?
Morgan Stanley suggests a combination of “growing negative sentiment” around diversity, equity, and inclusion strategies, along with the clustering of gains around the themes of generative AI and weight loss pills.
Novo Nordisk consistently makes the cut for being gender inclusive, though among the Mag7 only Apple is a perrenial. The sector view still shows HERS-qualifying US tech and Asian healthcare sharply underperforming less diverse peers:
Job cuts may also have reduced some companies’ diversity scores, the bank’s team speculates. It’s a theory that would square with evidence of a gender layoff gap and a tendency for bosses to eject employees who don’t look like them.
For investors who want to further the cause of gender equality in a convenient yet holistically insignificant way, several ETFs offer exposure to the theme. A cursory check suggests that since 2018 the class has underperformed the S&P 500 with the most famous example, State Street’s “Fearless Girl” SPDR Gender Diversity ETF, also underperforming the MSCI World.
ESG ETFs may have fallen out of fashion since a mini boom in 2019. What purpose it serves to bundle together stocks based on gender metrics (then abstain from gender pay gap votes) still isn’t obvious.
Still. Morgan Stanley’s most important finding is that. gradually, the corporate world is getting more equitable:
And will these trends be positive for share prices? Who cares.
Further reading
— The point of State Street’s “fearless girl” statue (FTAV)
— An actual ESG success story? (FTAV)
— Has the push for female equality gone too far? (FT; feel free to check if your comment about social engineering, natural order, identity politics and wokeness is already represented there before repeating it here)
Read the full article here