A number of studies have now looked at whether men or women can outperform in their portfolio management, including this 2018 Morningstar review of the US market. It’s a welcome finding that experience and skill are what matter, and that under-performance is not the reason for a lack of women in fund management.
City Hive view
Although research has looked at differences in investment approach, trading behaviour and risk appetite between men and women in investment, several pieces of research have now concluded that that performance is not a key differentiator.
Morningstar’s 2018 paper, Fund Mangers by Gender: Through the performance lens, considered whether the vast under-representation of women in the fund management industry in the US was due to under-performance. They tested the hypothesis across individual and portfolio performance and the differences found were either very small or not statistically significant. This will be used as a basis to continue research into other forms of diversity such as educational background – which has been considered in other areas, for example by Harvard Business Review looking at the venture capital industry.
This kind of research is an important precursor to help address lack of participation in the industry by women and minorities. Morningstar also notes a trend where the expansion of the industry has actually worsening female representation as men are taking the majority of new roles – 85-90% of the 6,500 equity and fixed income fund management positions that have been created since 1990. The levels of representation are out of sync with other professions including law and medicine.
Other research has also rejected gender aspects to investment style. A 2015 paper by Alexandra Niessen-Ruenzi and Stefan Ruenzi concluded that while female-managed mutual funds saw significantly lower inflows inflows than their male counterparts, there were no gender differences in performance.
Marisu Hol and Joakim Hald Andersen at the University of Bergen released in 2017 a study of Nordic mutual fund performance over a period of 15 years. This found that the gender of the fund manager was not a useful performance determinant. The research included a literature review of prior research that claimed gender differences in risk-adjusted performance, risk-taking behaviour and investment style – but found no support for empirical differences between men and women. They concluded that men and women with the same educational level and experience broadly shared investment styles and risk propensity.
In short, diversity is lacking across the fund industry due to a lower number of female participants and a lower entry rate than men, and compounded by a reduced access to funds. But gender should not be considered an issue in assessing the performance capabilities of fund managers.
- Morningstar found equally competitive fund performance from male, female and mixed gender teams. Their research looked at fund performance and manager performance, across three tests (see the paper for the full methodology). The tests did not find evidence to support outperformance by men although there appeared to be a slight bias towards men outperforming in equity and women outperforming in fixed income.
- One finding of note was in relation to fixed-income funds run exclusively by women, which had a cumulative return 4.23% (or 0.32% annualised) higher than the average fund’s return in the category, which was attributed to the specific time periods of the financial crisis and 2014-2017. Although there are no major conclusions drawn from this – in part due to the small number of women running funds, it may contribute to other research that looked at differences in decision making by women investors during market downturns (they were more likely to hold than sell).
- Looking at portfolio performance across six equity and fixed-income portfolios, the research found that in five cases portfolios with a higher concentration of female managers performed better, and in the sixth (equity) it was the reverse.
- Looking at average track records, the study found that while a, equity portfolio of men managing in teams outperformed women managing in teams, the latter outperformed men single-handedly running funds. Due to the lack of women running funds single-handedly, this data was not included in the study. There was no significant difference in fixed income.
- Men have taken the vast majority of new positions in the US as the industry has grown, so the proportion of women has slightly declined overall. But this cannot be explained by performance measures, and hence more research is needed.