The Secret Sauce for Management Fund Success
WHY YOU SHOULD CARE
Because it’s more proof that diversity makes for better results.
By Steven Butler
Who doesn’t believe that gushing testosterone defines the finance business…from hedge funds and investment banks to run-of-the-mill mutual funds? Whether it should is another question. There’s plenty of research to show that women investors often outperform because they show a steadier hand on the tiller, the sort of patience that can benefit long-term investors.
But it turns out that the winning team may be men and women working together…or maybe battling it out against each other’s worst ideas behind the scenes. In fact, over a ten year period, mixed-gender teams managing equity funds, buying stock in companies, bested their all-male counterparts in the mutual fund industry by
five percentile points
within the same fund categories, according to research by Morningstar. Okay, it might not sound like much, 41th percentile compared to 46th percentile, but small differences in fund performance can make a big difference over time and this amounts to a significant edge. The difference in performance also holds up over shorter time periods, suggesting something’s at work.
So what’s going on? Laura Lutton, the Morningstar analyst who compiled the report, said the results pointed to the real-world advantages of diversity, especially for active stock pickers, where managers try to find the strongest performing company to invest in rather than try to mimic the averages. Strong-minded people with diverse thinking willing to fight it out over the investment portfolio, she figures, is the winning formula. Or, who knows, maybe the women who make their way on to these male-dominated teams are just a better species.
A few big fund companies are standouts in recruiting women, including San Francisco-based Dodge & Cox, with $281 billion of funds under management, where 25 percent of managers are women. Next on the list is Franklin Templeton Invesments, with 14.7 percent. Dodge & Cox wouldn’t comment on how it got to such a relatively high contingent of women managers, but chances are it wasn’t by accident.
Lutton, who’s worked in the fund management industry for 15 years, didn’t anticipate the results of the survey. “I was surprised by how few women managed mutual funds,” she says, and doesn’t have a good explanation for why. Less than 10 percent of fund managers are women, compared, for example, doctors (37 percent), lawyers (33 percent), or even federal judges (24 percent). That makes the sample frustratingly small – 699 women out of a total of 7,700 named portfolio managers. It’s also unlikely to change anytime soon, she says, as the flow of women in the professional pipeline feeding these jobs is “meagre.”