Market Extra: Men make up 90% of portfolio managers, but not because they’re good at their jobs

This post was originally published on this site

Wall Street is dominated by men, but it’s not because they’re inherently better investors.

According to a Morningstar analysis, there is an enormous gap when it comes to gender representation among mutual fund portfolio managers, and this lack of equality can’t be explained by performance.

There are about 8,500 active mutual-fund managers, according to the study, which looks at data through the end of September 2017. This is up from the 1,900 managers in the industry in 1990. To an overwhelming extent, the new jobs over that period have gone to men, who gained 85% to 90% of the net new roles, even though a previous Morningstar study showed that women are more likely to have earned a chartered financial analyst credential than their male counterparts.

The following chart shows the total number of managers in the mutual-fund industry; the ratio of men to women is nine to one.

Courtesy Morningstar

According to a survey of asset managers from BackBay Communications and Osney Media, 78% of organizations say their firm has a “good” or “very good” approach when it comes to promoting both gender equality and racial diversity. However, just 6% say the overall asset-managing industry is “very good” on this front, and 35% describe the industry’s approach to equality and diversity as “poor” or “very poor.”

Morningstar’s performance study focused on active portfolio managers, who individually select the securities held in their portfolio with the aim of doing better than a benchmark like the S&P 500 SPX, -0.34% This is in contrast to passive fund managers, who have no discretion over what they hold—they simply own the same securities as the benchmark, and in the same proportion. Passive investing has become phenomenally popular over the past decade, amassing hundreds of billions of dollars in assets, while there has been a similarly sized exodus from active products. Both low fees and better long-term performance have fueled the shift to passive funds, exchange-traded funds in particular.

Related: Active beats passive in downturns, but not enough to make it worthwhile

The study tested whether all-male portfolio teams performed better or worse than the overall market, and how they performed relative to mixed-gender teams, or funds operated solely by women.

“In the data, we find the hypothesis that men outperform is not supported,” wrote Madison Sargis, a quantitative analyst on Morningstar’s quantitative research team. “We see no overall persistent differences in fund performance if the fund is managed by a man, a woman, or a mixed-gender team.”

The study did find some statistically significant divergences when looking at performance on short-term time frames, although it played down their significance.

“Since 2003, fixed-income funds run exclusively by women experienced a cumulative return that is 4.23%, or 0.32% annualized, higher than the average fund’s return in the category,” the report read. “Most of these gains came during the financial crisis and in the past three years.”

Mixed-gender bond teams also offered a slight premium over the past 15 years, but the upside was smaller, as seen in the chart below.

Courtesy Morningstar

The opposite occurred in a separate study for stock-based products. Here, “funds run by men outperformed funds run by women by 0.24% annually, relative to the category average,” the report read. “Equity funds run by mixed-gender teams had the worst performance, trailing the category average by 0.09% annually over the period.”

Courtesy Morningstar

Across its various tests, Morningstar called such divergences “significant but hardly meaningful,” and stressed that “we see no overall persistent differences in fund performance if the fund is managed by a man, a woman, or a mixed-gender team.”

The lack of diversity in the industry, it added, must be due to other reasons. While it didn’t speculate on what those could be, it concluded that “if men and women deliver similar performance, diversity comes with no downside for fund investors.”

Other studies have indicated better female performance. According to Terrance Odean, a professor at the University of California, Berkeley, men trade about 45% more than women, which reduces their net returns by 2.65 percentage points a year.

Outside of the active-management realm, however, the gender gap within the fund industry could also be leading to a gap in returns. Morningstar has previously studied the gender representation across all funds, and found that relative to men, women are 36% more likely to oversee passive funds, which are seen as the best long-term performers.

Read: Why it matters that women are underrepresented among portfolio managers

Among notable female passive fund managers, Michelle Louie is the co-portfolio manager of the Vanguard 500 Index Fund VFINX, -0.12% the first passive mutual fund ever launched, and one of the largest. Separately, Christine Franquin is the co-manager of the Vanguard Total International Stock Index Fund VGTSX, +0.16% Both were named to these roles in November.

The lack of gender diversity in the mutual-fund industry is hardly an anomaly; women are underrepresented across most sectors of the economy. According to FactSet, 20% of companies in the Russell 2000 RUT, -0.46% have no women on their board, while half have boards where women represent 15% or less of the directors.

Read more: More than 150 companies have added women to their previously all-male boards

Be Sociable, Share!

Related Posts

 

MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.


This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.


The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.


The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.