Where do gender-focused funds fit in a client’s portfolio?

If you’re not sure where a gender-focused fund fits in your client’s portfolio, you likely aren’t alone.

Such a fund’s value proposition might get lost in the advisory channel, said Lindsay Patrick, managing director and head of sustainable finance at RBC Capital Markets. She was part of a panel discussion on Friday held at the NEO Exchange in Toronto for International Women’s Day.

For example, advisors might be unsure whether a fund fits a portfolio based on performance or values, and whether the former is compromised for the latter, Patrick said.

Marketing is part of the problem, said Florence Narine, senior vice-president and head of product at AGF Investments.

The lack of clarity could mean investors miss out. Jennifer So, co-manager of the BMO Women in Leadership Fund, launched in 2016, said the fund’s risk-adjusted returns are on target, with the fund outperforming in down markets.

The first gender-focused ETF in Canada—Evolve North American Gender Diversity Index ETF, launched in 2017—also boasts solid returns. Raj Lala, president and CEO at Evolve ETFs, said his firm’s fund outperformed its benchmark by about 2.5% in 2018—in line with research showing that diverse companies tend to outperform.

Yet, he said he’s disappointed with the response so far to the ETF. Investors view the fund as a statement investment, he said, instead of a factor-based investment.

Patrick set the record straight, saying gender-focused funds exhibit consistently higher dividends and lower downside volatility. And, more generally, the funds have a higher return on equity and higher ESG scores, including on environmental factors, she said. Investors should ask whether the fund’s constituent companies are better across a variety of factors, she said, and not wonder about the statement they’re making.

Another misperception is ESG investing as a silo, So said. Instead, the companies she meets all aim to create a diverse labour force as part of their plans to succeed in business. “We need to frame diversity in terms of talent management,” she said.

About three years ago, only roughly 25% of TSX companies qualified for her gender-focused fund; now 60% qualify, she said. Qualifying metrics include board composition. Shareholders—or potential shareholders—are demanding change, she said.

Still, Canadian companies have a long way to go on diversity. Last year the Canadian Press reported that less than 8% of the top paid management roles of TSX 60 companies were women. Companies making gains toward gender diversity include those among the financial services, energy, mining and telecom sectors, the panellists said.

Younger clients might help drive fund demand. Lala says he expects the broader category of ESG funds to do well over the next decade as millennials start to invest. Younger Canadians want funds that align with their beliefs, he said.