Investors who wish to promote female empowerment no longer need to decide between their commitment to social impact and the pursuit of financial returns.
A handful of mutual funds and exchange traded funds (ETFs) have emerged in recent years that pledge to invest in either businesses led by women or companies that endorse gender equality and inclusiveness.
Those with a penchant for picking stocks (and a higher threshold for risk) can also purchase individual shares of companies that get high praise for family leave policies, pay parity, and other metrics.
And, they can potentially help to combat the lack of capital available to women entrepreneurs by investing in venture capital funds that provide seed funding to female founders.
“Impact investing can be really just a better way to invest,” said Scott Arnold, portfolio manager at IMPACTfolio in Denver, Colorado. “There is still that false perception that you have to sacrifice returns to align your portfolio with your values, but a multitude of studies have now been released that show you may get the same returns or better” by investing in solid companies that take environmental, social, and governance (ESG) factors into account.
Socially Responsible Investing takes off
Investment strategies that seek to empower women fall under the broader umbrella of Socially Responsible Investing (SRI), a category that is gaining momentum.
According to mutual fund tracker Morningstar, the number of sustainable mutual funds and ETFs increased in 2018 by nearly 50 percent and a record number of new funds were launched in both 2016 and 2018. Despite unfavorable market conditions last year, it found, sustainable funds attracted record net flows, which is defined as the amount of new money flowing into the funds minus the amount redeemed by investors.1
In response to demand for socially responsible investment opportunities, a greater number of existing funds are also adding sustainability and ESG criteria to their prospectuses. (Learn more: Socially responsible investing )
While many investors still worry that building a portfolio based on personal values may hinder their performance potential, Morningstar analysts found that is no longer the case.
According to its research, SRI funds outperformed on a relative basis in 2018, with 63 percent of sustainable funds finishing in the top half of their categories, including 35 percent in the top quartile. It also found that 73 percent of the ESG (Environmental, Social, and Governance) funds it follows have outperformed their non-ESG equivalents since inception.2
Why? ESG considerations are not just good for the planet, Morningstar found. They are good for business. Environmental stewardship helps management control costs and avoid damaging incidents, treating workers well helps companies attract and retain talent, and good governance leads to better corporate decision-making.
“These findings are consistent with other Morningstar studies observing that sustainable funds score well on factors linked to a positive long-term investor experience,” Morningstar strategist Dan Lefkovitz wrote in an analysis of ESG fund performance.3
Of course, investors should be aware that past performance is no guarantee of future returns. A financial advisor can be instrumental in helping investors select a portfolio that reflects their values and meets their financial goals.
If you’re eager to support businesses that are owned, founded, or led by women, these are four ways to make it happen.
1. Mutual funds and ETFs
Many socially responsible mutual funds and ETFs screen for inclusion and diversity. The following funds are some examples of funds that claim to be specifically designed to help women:
- Glenmede Women in Leadership US Equity (GWILX), which seeks to provide exposure to U.S. large capitalization companies that demonstrate greater gender diversity within senior leadership.
- Impact Shares YWCA Women’s Empowerment ETF (WOMN), which tracks the Morningstar Women’s Empowerment Index, owns companies worldwide with strong policies and practices in support of women’s empowerment and gender equality.
- Pax Ellevate Global Women’s Leadership Individual Inv (PXWEX), which invests in companies worldwide that advance women through gender diversity on their boards and in executive management.
- SPDR SSGA Gender Diversity ETF (SHE), which seeks to provide exposure to U.S. companies that demonstrate greater gender diversity within senior leadership than other firms in their sector.
In addition to these examples, other female-friendly fund offerings include those available through the nonprofit investment firm Calvert Impact Capital, which invests specifically to “create a more equitable and sustainable world.” The firm sells corporate bonds (or Community Investment Notes) and invests the proceeds for growth and social or environmental impact in intermediaries and funds around the globe that support underserved communities.
Similarly, the Domini Impact Equity Fund (DSEFX) invests exclusively in mid- to large-capitalization stocks that meet its rigorous standards for social and environmental responsibility. Like all Domini funds, it also excludes businesses engaged in weapons and firearms, nuclear energy, natural gas, coal mining, tobacco, oil, alcohol and gambling.
Neuberger Berman also offers equity (stocks) and fixed income (bonds) funds that seek to generate ESG impact, alongside a financial return.
With minimal effort, you can also determine the degree to which your existing mutual fund investments or employer-provided 401(k) is invested in companies committed to gender diversity and equality by using the free search tool available through genderequality.org.
2. Buying individual shares
ESG and SRI funds make it easy to invest for impact, since the fund manager does the stock picking for you.
Mitchell Kraus, a financial advisor with Capital Intelligence Associates in Santa Monica, California, who has been integrating ESG/SRI investments into his client’s portfolios for years, said average retail investors are generally well-served by sticking with funds. “I find that for most clients who wish to create a diversified portfolio, having ETFs and mutual funds works best,” he said in an interview, noting that each client is different.
If you’re willing to roll up your sleeves and have the skill set to research stocks on your own, you might instead consider buying a few individual shares that meet the female-friendly criteria.
An easy entrée is to look for companies that get recognized repeatedly for gender pay equality, women’s advancement in the executive ranks, flexible work schedules, and generous family leave policies.
Working Mother magazine produces a list of top 100 companies every year, as does the National Association of Female Executives and Forbes magazine.
Be aware that buying individual stocks is inherently more risky, especially if it upsets the balance in your diversified portfolio. Financial advisors caution against overexposure to any one company or sector — the financial equivalent of putting all your eggs in one basket.
Here again, a professional advisor can help you create an asset mix that helps you achieve your goals while managing downside risk.
3. Venture capital funds
More sophisticated investors who aren’t afraid to finance unproven startups, might also consider venture capital funds that provide seed money to women entrepreneurs.
There’s no denying that the need is great.
According to data from investment bank Goldman Sachs, just 2 percent of U.S. venture capital in 2017 went to companies with all-women founding teams and 12 percent went to teams with at least one woman.4
That hasn’t stopped female visionaries from forging ahead.
American Express research revealed women are starting an average of 1,821 net new U.S. businesses a day and the number of women-owned businesses has increased nearly 3,000 percent since 1972. Importantly, the number of firms owned by minority women has also grown by nearly three times that of all women-owned firms over the past 11 years, according to research by American Express.5
To encourage that growth, a select few venture capital funds are looking to improve access to capital.
For example, the Female Founders Fund provides early-stage funding in areas where women-led startups have historically had significant impact, including e-commerce, web-enabled products and services, marketplaces that connect buyers and sellers, and platforms (i.e. disruptive networks and communities connected via technology solutions.)
According to its website, the fund also seeks to create a network for female founders to share knowledge.
Goldman Sachs in 2018 also invested $500 million into private- and late-stage, women-founded, women-owned, or women-led companies. The “Launch With GS” program will enable client investors to either invest in late-state companies or provide seed capital for women. A key component of the program is networking, bringing together investors, entrepreneurs, non-profits, and other leaders (both men and women) to nurture and grow new businesses.
“We believe fostering a community will, over time, help increase the pipeline of investment opportunities in women-led businesses,” said Stephanie Cohen, Goldman Sachs’ chief strategy officer, in a statement. “We also hope it makes a difference for women who have big ideas, but find themselves cut out of the funding ecosystem.”
4. Donate or lend
If you’re not prepared to commit a portion of your portfolio to women-focused stocks, there are still plenty of ways to put your money to work.
Consider supporting a startup through a crowdfunding platform such as iFundWomen, which provides needed capital for female entrepreneurs using a pay-it-forward model.
You can also become a lender through microloan sites such as Kiva, which help women in poverty worldwide to start their own businesses, generate an income, and get an education.
Or, you can donate to organizations like Accion or Elizabeth Street Capital (a partnership between the Tory Burch Foundation and Bank of America), both of which provide small business loans to women in underserved communities.
It’s never been easier to empower women in business.
As investors take steps to align their portfolios with their principles, and research reveals that ESG stocks can outperform relative to their peers, Arnold said he believes that the trend towards impact investing will continue to climb.
“It’s here to stay,” he said. “It’s no longer a niche investment strategy.”
Learn more from MassMutual…
1Morningstar, “Sustainable Funds U.S. Landscape Report,” 2019.
2Morningstar, “ESG Investing Performance Analyzed: Morningstar Indexes show sustainability is good for business,” March 12, 2019.
3 Morningstar, “ESG Investing Performance Analyzed: Morningstar Indexes show sustainability is good for business,” March 12, 2019.
3 Goldman Sachs, “Closing the Gender Investing Gap,” June 19, 2018.
4 American Express, “State of Women-Owned Businesses Report,” August 21, 2018.