It runs contrary to popular belief but women make better investors than men, and this isn’t my own fanciful hypothesis. It is proven.
According to the investment firm, Fidelity, with $US6 trillion under management, among 8 million investors in 2016 female investors outperformed males by 0.4 percentage points (40 basis points) over the year, and have also outperformed men over the past decade.
Analysis by investment tracking app Openfolio reveals the same trend. An evaluation of the returns generated among its 60,000 American investors shows that women have performed better than men for the past three years. In 2016, women obtained investment returns an average 0.2 percentage points better than men.
For the past five years, hedge funds run by women have outperformed a broader benchmark. The HFRI Women index is a global, equal-weighted index of single-manager funds owned by minority women or managed by women that report to HFR Database. It has returned 4.4 per cent over the past five years, compared with a 4.2 per cent return for the HFRI fund weighted composite index, a broader gauge of hedge funds across different strategies and genders.
These small margins might not seem like much, but would make a significant difference when compounded over time. Think about mortgage rates. But they represent a potent counterpoint to the common view that women aren’t cut out for finance – that a shoe collection is the only thing they could “invest” in.
When Fidelity asked men and women who was better at investing, the results were stark.
Forty-two per cent of respondents answered men, compared with 9 per cent who said women.
The remainder either had no opinion or thought there was no difference.
It is perhaps unsurprising given the observation expressed by Sallie Krawcheck, a titan of Wall Street who was the chief executive of Citigroup and Bank of America. She describes the investing industry as being built “by men, for men”.
Because the industry is overwhelmingly dominated by men, reality has become the perception.
Krawcheck admits that for a time she bought into the “myth” that women had no clue about finance. It is why in many households – including her own at one point – it is customary for men to manage the money.
Which is problematic, not merely because it perpetuates the misguided notion that the knack for investing necessarily accompanies the XY chromosome. It has bred a collective distrust among, and about, women as investors.
It’s to the detriment of women’s financial security and ignores the reality that women can – and need to – manage their own finances.
Because of factors like divorce, women marrying older, more women not marrying and women living longer than their partners, research indicates 90 per cent of American women will, at some stage, be solely responsible for their finances. This is likely to be the same in Australia.
Technically this shouldn’t be a problem because women make savvy investors. The problem is this isn’t adequately recognised and it certainly isn’t reflected in the industry.
According to Ellevest, the tailored digital investment platform for women that Krawcheck set up in 2014, more than 86 per cent of investment advisers in the US are men over the age of 50.
Ellvest’s tagline to women is telling: “The current system wasn’t built for the realities of being you. So we’re changing the game.”
It is widely accepted that women are more risk averse than men in an investment context. And this was confirmed by Kajanga Kulatunga, who heads the behavioural investing research department at NAB Asset Management.
One study found women and men activate different brain regions when they think about making investment decisions and concluded: “Men are willing to take a lot of risk, women not so much.”
What isn’t widely known is that this translates positively in returns.
“Women are doing better than men and with a lot less risk,” Kathleen Murphy, president of personal investing at Fidelity told CNN. “Women have long-term goals, and they stick with the plan. They focus on saving and investing for retirement or a kid’s college fund, not on outsmarting the market.”
The biggest obstacle to women realising their investment potential is not that they lack the skills to do that well. It’s that they don’t realise they have good grounds to trust – and back – themselves.