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

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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

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