By Amy Domini, founder of Domini Social Investments and partner in The Sustainability Group
As I was working on this article, the old Buffalo Springfield lyrics kept buzzing through my mind. “There\’s something happening here; what it is ain\’t exactly clear.” The more I looked at actual research about women as investors, both as investment managers and as persons making decisions about how and where to entrust their savings, a conundrum became apparent. Women are good investors, better than men, but women are not trusted to run portfolios.
I start with some of the better-known studies. June 2015 Morningstar published a research report surveying mutual fund managers by gender. Their findings seem pretty stark. Less than 10 percent of all U.S. fund managers were found to be women. If you count the dollars rather than the people, the results are even more dramatic. Women run about two percent of the industry’s assets. This offers fairly conclusive evidence that women are not participating at high levels in the investment fund management industry.
One clue into why that may be is a study of behavioral scientists that attempted to see whether there was a prejudice against investing into mutual funds run by women. April 2011 Alexandra Niesen-Ruenzi and Stefan Ruenzi of the University of Mannheim, published the results of their study, Sex Matters: Gender and Prejudice in the Mutual Fund Industry. Their conclusion was that customer discrimination as to gender does exist. They argue that the discrimination is what led to those funds which are run by women experiencing fewer fund flows to them, even though they found no difference in performance. Male-managed funds saw, on average, 15.6 percent higher flows.
They argue that the reason the money in mutual funds run by women (an average fund size of $573 million in this study) is less than the money in mutual funds run by men (an average fund size of $711 million) is that the funds run by women fail to attract assets. The above study attributes this to prejudice and presumptions that women will deliver a lower rate of performance. The scholars found no performance differential and no other reason for investor behavior. They even found that an S&P 500 index fund run by a woman would experience lesser fund flows than one run by a man.
Now we look at the investors themselves. The Investment Company Institute is the trade organization for mutual fund management companies. ICI publishes research into every aspect of the fund. In their recent, Equity Ownership in America, they surveyed mutual fund owners and those that purchased stocks directly. The characteristics tell us that household investment decisions are generally jointly made. Fifty-four percent of the decisions as to what to invest in are made between a male and a female acting together. Twenty-five percent of the time it is a male acting alone and 20 percent of the time it is a female.
I cannot know the dynamics of the jointly made decisions, but if you narrow the field to just those you know the gender of, 20/25 or 44.4 percent of deciders are female and 55.6 percent are male. From the above Mannheim study, we know that neither males nor females prefer female managers, but since male and female asset managers perform equally well, Mannheim does not tell us whether the household with the female decider does as well as the household with the male decider.
For gender-defined investor savvy, we turn to behavioral economics. In 2001 Brad M. Barber and Terrance Odean, studied the difference between male and female amateur investors. Their study, Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment, found that men take on more risk and save less money. Men trade almost one and a half times more frequently than women. They are less likely to research investments and more likely to act on a tip. Over the course of a seven-year period, the study found that a female investor acting alone outperformed a male counterpart by 2.3 percent. When women invested together in a club, they outperformed the male-only investor clubs by 4.6 percent.
In 2005 Merrill Lynch investment managers released a survey they had undertaken. Merrill found that women make fewer investment errors than men. “Women are far less likely than men to hold a losing investment too long (35 percent of women reported having done so at least once vs. 47 percent of men) or wait too long to sell a winning investment (28 percent vs. 43 percent). Men are also more likely than women to allocate too much to one investment (32 percent vs. 23 percent), buy a hot investment without doing any research (24 percent vs. 13 percent) and trade securities too often (12 percent vs. 5 percent).” They found that women are more likely than men to have a financial plan and to be satisfied with their financial situation.
So here’s a conundrum. Given that women save more and invest better, why is the male the decider of where most households invest? And why, given that male and female asset managers manage equally well, do investors prefer a male at the helm?
For me this is more than simply idle curiosity. Domini Social Investments (www.domini.com), the management company I founded, is women-managed. Four of our top six officers are female. Our messaging to the public goes out in pamphlets and advertisements that have an implicitly female look and feel. Our very logo is a feminist act.
The starfish became our logo because of a simple story we publish. Our version (there are a few) goes like this: Thousands of starfish washed ashore. A little girl began throwing them in the water so they wouldn\’t die. “Don\’t bother, dear,” her mother said, “it won\’t make a difference.” The girl stopped for a moment and looked at the starfish in her hand. “It will make a difference to this one.”
When I heard that story it was about a boy and his father. I feminized it because I wanted to be explicit about the fact that wisdom can be found in the voices of those traditionally overlooked as sources. What more naïve voice than that of a little child? And yet she is right. Do what you can; make a difference if you can. But perhaps that was a mistake. Perhaps I should be more masculine in my messaging, at least if I want to grow my assets under management.
For those of us who advise investors of both genders, none of the above surveys or studies reveal anything we have not intuited through our practice. Women are more deliberate and considered when choosing a manager and when choosing an investment plan. We know, as the Merrill Lynch study found, that women are “eager to build a working partnership with their financial advisor.”
I have often said that to succeed on Wall Street you need two skills. First, you need to be able to attract and retain clients. Second, you need to be right about what you invest in more often than you are wrong. These are skills that women can acquire. In fact, if any of the studies are on target, the second is a skill women acquire intuitively. Yet the conundrum exists. It is time that we women, that society as a whole, and that Wall Street addressed the barriers and tore them down.
Article by Amy Domini, partner in The Sustainability Group in Boston where she manages roughly $1.1 billion in liquid assets for high net worth families. Additionally she is the founder of Domini Social Investments (www.domini.com), a New York City based mutual fund family with $1.6 billion under management. She is widely recognized as the leading voice for socially responsible investing. In 2005 she was named to the Time magazine 100 list of the world’s most influential people, and in 2009 Time listed her as one of 25 “Responsibility Pioneers”. In 2005, President Clinton honored her at the inaugural meeting of the Clinton Global Initiative.
Ms. Domini co-authored the groundbreaking book, Ethical Investing in 1984. Since then she has authored or co-authored several books. Her articles have been widely published and she is a regular contributor to The Intelligent Optimist magazine. Ms. Domini serves or has served on several boards and holds the Chartered Financial Analyst designation.
Ms. Domini holds a B.A. in international and comparative studies from Boston University. She is the recipient of two honorary degrees: a Doctor of Business Administration, from Northeastern University College of Law and a Doctor of Humane Letters by the Berkeley Divinity School at Yale.
