Award-winning journalist Cherry Reynard investigates whether women really do make better investors than men and reveals how we would all benefit from more female leadership when it comes to our finances
Women may be busy breaking glass ceilings, but the financial services industry has remained largely impervious to the march of gender progress. The majority of fund managers and analysts are men, and women remain reluctant investors at best. However, like DIY or putting out the bins, just because it has traditionally been done by a man, it doesn’t necessarily mean they are better at it. In fact, there is increasing body of evidence suggesting just the opposite.
It remains unquestionably the case that men are more likely to be managing investments, both professionally and personally. Data from hedge fund research group HFRX shows fewer than one in 20 hedge funds employ a female portfolio manager, and only around 10% of UK fund managers are women. This echoes Citywire research, which showed that across the collective fund industry in the UK, just 6% of the funds under management are run by women. In a study of 1,400 managers, it found just 67 women in charge of funds, and many of those had a man as a co-manager. Around the world, men run around 80% of all funds.
Data from Boring Money showed that there is a similar picture for private investors. It reveals a ‘gender investment gap’ with 23% of women holding investment products compared with 35% of men. Overall, women prefer to hold their savings in cash, with a far higher take-up of cash ISAs, for example.
Yet when women do invest, they tend to be better at it. HFRX data shows that female fund managers have outperformed male managers over three, five and ten years with hedge funds run by women growing twice as fast as the industry average over the past 12 months. The HFRX Women index, which measures the performance of female fund managers, rose 11% over the past 12 months, compared to 6% for the wider HFRI Composite Index.
What makes a good fund manager?
Peter Toogood, chief investment officer at The Adviser Centre says that there are a number of necessary skills for success in fund management: “A good analytical brain and the ability to work in an ordered fashion. Furthermore, the ability to communicate effectively with both the external audience (company management and clients) and the internal audience (peers and staff) is a valuable skill. A desire to generate wealth and meet expectations for clients (first) and themselves (second) are also important motivations.”
He says that other, less obvious, traits might be natural intuition, which is typically associated with a high emotional IQ, and an ability to entertain other people’s perspectives. He also believes that a high-level of self-confidence is absolutely vital: “This job is all about your perspectives versus the entire market, as expressed in a stock or asset’s current price!”
None of these traits are obviously gender-specific, though it could be argued that some are found more commonly in one set of chromosomes. Of the Adviser Centre’s recommended funds, around 10% are managed by women, a little higher than the wider market. He believes this headline number belies the presence of women in the broader investment teams and particularly in analytical roles. He adds: “As it happens, our own research team is predominantly female and I will happily stick my neck out and state that my colleagues are rigorous and objective in their pursuit of fact-based research. However, that is their disposition, not a function of their gender!”
Another argument is that the hedge fund numbers are, to some extent, a reflection of the male dominance of financial services. It takes a certain type of woman to forge a path in a man’s world. Those that make it through the rank of analyst, to fund manager, have had to be better and fight harder. It could be argued that it doesn’t say anything about men and women per se, simply about the environment in which they are operating.
However, the stronger performance among private investors suggests there may be more at work. Research by Warwick Business School compared male and female investors on the Barclays’ Smart Investor platform. It found women’s returns on their investments were on average about 1.2 percentage points higher than men. Researchers surveyed 2,456 investors, of which 450 were female, between April 2012 and July 2016.
Neil Stewart, professor of Behavioural Science at Warwick Business School and author of the study, said: “The key difference appears to be men’s preference for lottery-style investments. They want cheap low-value stocks that might go up a lot, but probably won’t. This style preference explains around half of the difference between men and women.” He says that they tested a number of other things – financial knowledge, competency of forecasting, for example – but they didn’t make a difference.
He added: “The other half must be one of two things – women are better at picking stocks or they are better at timing. Certainly, we find that men tend to trade too much and any advantage this confers is more than lost in fees.”
This is a common theme. When investment platform Hargreaves Lansdown did similar research, it found that its female clients had outperformed the men by an average of 0.81%. The group attributed this to less frequent trading – women traded shares 49% less frequently than men and funds 67% less frequently. At the same time, they also make fewer speculative investments, according to the HL report. Its analysis showed women are almost 50% less likely to suffer losses of 30% or more than men.
This consistency is important. If an investment loses 30% in one year (£1000 becomes £700), it then needs to rise by over 40% to get back to its original level. If it only loses 10% – £1000 becomes £900, it only needs to rise around 11% to achieve its previous level. Trading adds costs, which dent returns over time. The Hargreaves Lansdown report also showed that women are more inclined to diversify and also hold onto their investments for longer.
Patience creates profit
Anna Sofat, managing director at advisory group Addidi, says the real situation is a little more nuanced than the statistics suggest. “Women aren’t necessarily risk averse – they are considered risk-takers. They ask a lot of questions and they tend to be immune to the ‘sales pitch’. An adviser who tries this will turn them off. They won’t make a move until they are comfortable and they won’t take a risk with their core security – their house and their children. Once they do invest, they will tend to take a long-term view, rather than trying to make money by buying and selling in the short-term.”
However, it should be said that this caution has a downside. While those women who do invest tend to do better because they trade less, incur lower fees and stay invested for longer, there are still a huge number of women who hold too much in cash. This leaves their savings exposed to inflation and likely to grow poorly over time. Kate Fitzpatrick, head of content and community at Boring Money, says: “Only 15% of women say they’re confident in choosing an investment. Language can make a massive difference; it’s really key here. We know that plain English is the number one priority for women when they look at financial services, even above returns; they want things explained clearly but without condescension. This is slowly improving but there’s a long way to go.” Clearly, plain language and more women investing would see better returns for all.
Cherry Reynard is an award winning financial journalist, who has written for the Financial Times, Forbes, Investors Chronicle, The Telegraph and Money Observer