Can doing well in the stock market be as simple as making sure you have a lot of women fund managers working for you?
I’m skeptical, because it’s always dangerous to embrace generalities about demographic groups, flattering or pejorative.
But research keeps popping up that says female fund managers outperform males.
* A study published by Goldman Sachs found that 48% of female-managed funds outperformed from the market low in March through August, compared with 37% for all-male funds. Funds managed by females also held up better in the Covid-19 market meltdown that hit bottom in March.
* During the trailing 12 months, female-managed hedge funds have outperformed, reports Chicago-based Hedge Fund Research.
* Women hedge fund managers delivered nearly double the performance of men from January 2000 through May 2009, a period bookended by the dot-com meltdown and financial crisis, says a study by Hedge Fund Research. The same study found female-managed funds held up much better in 2008, falling 9.6% compared with 19% for male-run funds.
* A study by McKinsey & Co. found companies with more women in top management and on boards tend to perform better. That’s not fund related, but still relevant.
To find out why it might be that women outperform, I recently talked with several experts who would know.
First stop: Maria Negrete-Gruson, manager of the Artisan Sustainable Emerging Markets Fund APHEX, . She’s a good source on this for three reasons.
She exemplifies the theme through outperformance, beating her Morningstar diversified emerging markets category by 2.9 percentage points annualized over the past five years. She also outperforms the MSCI Emerging Markets Index over the same time frame. That’s no small feat in a world where so many fund managers lag behind. Next, five of the six analysts on her team are women. Third, Negrete-Gruson has a lot of experience watching how men and women behave in the industry. She’s been with Artisan since 2006, and she graduated from Columbia Business School in 1995.
Favorable decision-making skills
Her take on this: Women are rich in the skills groups need to make good decisions, such as listening, considering lots of information and divergent viewpoints, and taking enough time to do all of this. So naturally they are good at choosing the right stocks to buy. “It is about careful decisions, which entails a more prolonged decision-making process,” she says. “A more diverse group makes better decisions. So, having females or female leadership could contribute to outperformance.”
Academic research supports this idea.
“The presence of diversity of any kind improves decision comprehensiveness, and the likelihood a group will consider information more broadly and not engage in groupthink,” says Aparna Joshi, a management professor at Penn State University. “It is not that minorities think different, but just that their mere presence has that effect on teams.” By “minorities,” he includes women since, sadly, that’s what they are still in business and investing.
Research by University of Maryland Smith School of Business professor Cristian Dezsö found that companies with women in top management perform better. But only when their business depends a lot on research and development. This confirms theories that “women have a management style that encourages people to speak up and exchange ideas,” says Dezsö. “That seems to be more important when you need creative thinking in areas like research.” And that includes investment research.
The right take on risk
A common theory holds that female fund managers do better because they are more cautious about risk. But Negrete-Gruson isn’t buying it. In fact, she thinks this stereotype helps explain why more women don’t advance in the field. “Risk aversion means you are shy to step up and do it.” Not a great trait you want people ascribing to you, in investing, where risk has to be part of the game.
Once again, academic research supports her view. A look at the performance of 20,000 mutual fund managers over two decades by Dezsö at the University of Maryland concluded that women in investing don’t suffer a risk-aversion deficit. Instead, something much more interesting is going on.
Dezsö accepts that women in general may be slightly more risk averse than men, as research confirms. But he questioned whether that carries over to fund managers. After all, they’re a select group who are more comfortable with risk. So he studied the risk appetite of women in investing to find out if gender really affects risk tolerance.
He discovered this fascinating relationship between risk and gender: The more women at a fund or fund family, the more risk women are willing to take on. Why? On their own, women may feel pressure to take fewer risks because of stereotypes. “But then when they have more female colleagues, this stereotype lifts and they take more risk,” he says.
The effect of women on risk appetite did not stop there. He also found that male fund managers take on more risk when more females are in the mix. Though not necessarily for noble reasons. Borrowing a conclusion from psychology research, he thinks it’s because men feel threatened when they see females taking on more risk. So, they respond by taking more risk, too.
The Goldman Sachs study published in August supports this take on the presence of females and risk appetite. It found that the female-managed mutual funds outperforming this year had a higher exposure to riskier tech and biotech names like Amazon.com AMZN, -0.26%, Apple AAPL, -0.95%, Microsoft MSFT, +0.04%, Abbvie ABBV, +1.71% and Tesla TSLA, +0.74%. In contrast, funds managed by men had greater exposure to more staid names in finance, including Berkshire Hathaway BRK.B, +0.68%, Wells Fargo WFC, +2.42% and Visa V, -0.22%. To beat the S&P 500 SPX, +0.52%, Dow Jones Industrial Average DJIA, +0.54% or Nasdaq COMP, +0.18% this year, it paid to be in those tech and biotech stocks.
It’s worth pointing out that not all research supports this theme. A study by Morningstar found that gender had no effect on performance. The study points out that females perform no worse. So poor performance can’t explain the underrepresentation of women in money management.
How to play this
But the other studies suggest that if you want to do well in the market, you should consider owning female-managed funds like the Artisan Sustainable Emerging Markets fund run by Negrete-Gruson. Not all female-run funds outperform, but hers does. Plus, emerging markets outperform during economic growth phases, which is about to play out. That’s my base case is for strong growth over the next year because of all the stimulus put into the economy.
If you want to go it alone, consider some of her top holdings. They’re still attractive at current levels, otherwise she’d be out of them, she says.
Top positions include MercadoLibre MELI, -0.37% in online retail and payments in Latin America; Alibaba BABA, -0.54%, strong in cloud computing in China; Sino Biopharmaceutical SBMFF, -3.84% and 1177, -1.75% in cancer-therapy development and generic drugs in China; Trip.com TCOM, +2.33% in online travel in China; iQIYI IQ, +0.34%, the “Chinese Netflix”; Taiwan Semiconductor TSM, +0.65% ; and Jumbo JUMSY, -7.49%, a Greek retailer.
One feature that these companies have in common is sustainable earnings power, a key feature Negrete-Gruson looks for in the volatile boom-bust world of emerging markets. Knowing this should help you tolerate the heightened risk of owning emerging market stocks.
Then again, when the going gets tough and volatility picks up, as it always does, you might not be able to handle the pressure of positions moving against you.
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned TCOM. Brush has suggested TCOM in his stock newsletter, Brush Up on Stocks. Follow him on Twitter @mbrushstocks.