The Nordics Are Leading In More Female Executives
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Summary: It is Women's Day next week and therefore it makes good sense to revisit our Women in Leadership basket. While there is a growing evidence that a higher share of female executives is good for long-term equity returns our basket did not reflect that over the past year. Our revisit of the basket has also led to 12 companies being substituted in the basket. A key observation on the new basket is that the Nordic countries are overrepresented relative their size in equity markets with six companies in the 20 stocks basket.
Performance the past year and revisit the case for leadership diversity
We launched our Women in Leadership theme basket because we wanted to make a different point on ESG than the classical ways of forming ESG portfolio. The “E” was already covered well across our renewable energy, green transformation, and energy storage baskets, so we thought that we could make an interesting angle on the “S/G” and here our view was to highlight companies with the highest share of female executives across the daily executive management team and board of directors.
There is a growing evidence in the literature that gender diversity in the executive body of a company adds to long-term performance, and the Credit Suisse note Higher Returns with Women in Decision-Making Positions from 2016 links to a lot of great information on this observation. Just like we diversify portfolios for better risk-adjusted returns, management teams should also be diversified across gender, age, and other characteristics to ensure decision-making includes different perspectives. While the literature is mixed on men’s overconfidence and the scientific question is how do we isolate this effect properly, but we do have strong evidence of over-confident behaviour among men in trading and investing compared to women. If this trait extends into general decision-making behaviour we can see why companies dominated by men could lead to sub-optimal decision-making and thus bad long-term performance.
We revisiting the case for more female executives and why it matters because of the Women’s Day coming up next week on 8 March. While there is good case to be made in terms of equity returns from companies with a higher share of female executives we have not seen that over the past year in our basket. The Women in Leadership basket has performed in line with the MSCI World Index since the last Women’s Day on 8 March 2022 declining 1.3% compared to a decline of 1.2% in the MSCI World Index. The five year performance looks better but here as with all our other baskets we have be aware of the selection bias as we select the highest market cap stocks in each theme at inception which tend to inflation historical performance underscoring the conventional wisdom that past performance is not an indicator of future performance.
Basket update and the Nordic leadership on female executives
In this year’s update to the Women in Leadership basket 12 companies have left the basket and 12 new companies have entered. The new basket is shown in the table below representing a combined market cap of $860bn and a median percentage of female executives of 55%. The median revenue growth rate for these companies is 17% compared to a year ago and the companies also generally have a high operating margin with the median close to 22%. All stocks have a positive spread to the price target meaning that those price targets are above the current price. An interesting observation is that Norwegian companies are heavily overweight in this basket with four companies and if Swedish-based Investor and Danish-based Novozymes are added then the Nordic countries represent 30% of the companies in the basket. This highlights that the Nordic region is leading the transformation towards a higher share of female executives.The selection criteria for this basket are companies with a market cap above $10bn, publicly listed in North America, Europe, Singapore, Australia, Japan, Hong Kong, or New Zealand, the number of female executives* is above three to avoid the percentage number to be inflated by a small management group, and finally a market cap filter from highest to lowest. The 20 companies at the top after applying these filters are selected for the basket.
* The definition of a female executive is whether the person is a member of management or the executive body including board of directors
Source: Women in Leadership The Nordics are leading the transformation | Saxo Group (home.saxo)
