Powerful Women = Powerful Returns

Powerful Women = Powerful Returns

over 3 years ago2 mins

Mentioned in story

While many investors – particularly young investors – may want their money to support businesses that promote and empower women, it’s always been tricky to prove whether having more female managers actually feeds through to an improved share price. But a new report from Goldman Sachs finds compelling evidence that powerful women lead to powerful returns – and introduces an easy way to track them for your portfolio.

What does this mean?

Goldman’s research, published on Tuesday, found that shares of public European companies with a greater than average number of female managers or board members for a certain sector rose more than those with a below average share. However, simply employing more women overall didn’t have much of an effect on share-price performance.

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Looking just at board seats, here’s how the trend has progressed over time:

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So, it would seem that – for Europe at least – there’s a clear pattern of more women in positions of responsibility leading to a healthier share price. Goldman points out, however, that it could potentially be a case of correlation rather than causation, with investors attracted to “ethical” Environmental, Social, and Governance (ESG) funds that then pour money into such companies.

“This is difficult for us to identify or separate,” they wrote. “But even if this were the case, we continue to believe investors will value higher social and governance scores for companies, so companies that do perform well on these metrics should continue to attract both flows and a premium.”

Why should I care?

With investors increasingly including ESG concerns in their purchasing decisions, you’d be foolish to ignore them. Just look at the billions flowing into ESG funds over the past few years. All that money has to find a home somewhere.

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Looking specifically at female representation, Goldman has created a “Womenomics” basket of European companies with above-average numbers of women employees, managers, and board members. These stocks – including food giant Nestle, retailer Carrefour, and drug firm AstraZeneca – have beaten the wider market by about 18 percentage points over the past five years.

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Here’s the full list if you’re interested:

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So next time you’re building a screen for stocks to add to your portfolio, consider including a condition for women in power in addition to your standard price-to-earnings or sales growth metrics.

And if you want to know more about how to build stock-market screens, check out our Investment Screening Pack.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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