Gender diversity funds are being shunned by investors despite a rebound in performance, as the backlash against ESG investing rages on.
Global active funds and ETFs backing female-led businesses racked up $1.4bn in net outflows in 2023, according to estimates from Morningstar Direct shared exclusively with Financial News.
The pressure has not let up in 2024, with investors pulling an additional $79.4m in the first quarter.
READ Why gender funds continue to disappoint
Gender diversity funds started gaining popularity nearly a decade ago as the ESG movement hit its stride, with asset managers coming under pressure to add more women to their own senior ranks.
But amid a fallout over sustainable investing, which has seen fund giants blacklisted in certain US states, they are now struggling to retain and attract cash.
Assets in the sector have shrivelled in recent years, falling from $5.1bn in 2021 to $3.7bn at the end of March.
The $727m UBS Global Gender Equality ETF saw the highest level of redemptions last year, according to the Morningstar Direct data. Assets in the fund have more than halved since 2022, with more than $1bn of assets yanked last year. UBS was approached for comment.
Robeco’s Global Gender Equality Equities fund was also badly hit by outflows and shed $116.9m in 2023, while investors withdrew $70m from the Impax Ellevate Global Women’s Leadership fund.
Christine Cappabianca, portfolio manager at Impax, said investor pessimism was partly down to an unfavourable macro backdrop, which saw sustained moves away from equities towards fixed income and cash.
“While there have been some outflows from the Impax Global Women’s Leadership fund, our experience is that these gender-lens-focused assets are stickier than more general ESG or broader market products,” Cappabianca said.
Cut out of the chase
When global investors were allocating money to equity funds, they were chasing AI and the ‘Magnificent Seven’ stocks, which gender funds tend not to own, a Robeco spokesperson said.
“Women are under-represented in every sector, but some sectors/companies are better (or worse) than others. We are especially tracking [the percentage of] women in management and in total workforce, and we find women make up just 20% of AI and data professionals and 18% of users across the largest online global data science platforms,” they said.
Diversity champions in the City have warned that the rhetoric against green investing and ‘woke capitalism’ is fuelling a similar backlash against diversity, equity, and inclusion initiatives.
Baroness Helena Morrissey said the backlash against DE&I has “reached a whole new level” and has advocated ditching the acronym in a move that echoes BlackRock chief executive Larry Fink’s decision to stop saying ‘ESG’.
Her own diversity fund, the L&G Future World Gender in Leadership UK index fund, known colloquially as the Girl Fund, was merged away in 2021 due to lack of investor interest.
Justin Onuekwusi, chief investment officer at St James’s Place and co-founder of diversity group #talkaboutblack, has issued a similar warning, telling FN that the DE&I movement is being used as a “political football”.
Cappabianca said the anti-ESG and anti-DE&I dialogue is part of the evolution of the nascent gender lens investing market, “but we believe that this is more a matter of semantics as opposed to fundamental belief changes”.
Performance pressures
Outflows have ramped up despite gender funds delivering some of their strongest annualised returns in years.
The $810m Impax Ellevate Global Women’s Leadership Fund, the largest strategy in the global gender funds universe, returned 18% last year after losing investors money in 2022, though did not beat its MSCI World benchmark, which rose 24%.
The Fidelity Women’s Leadership fund, which has $160.5m in assets, rose 21% over the period compared with the 25% gain of the Russell 3000 index.
Passive strategies also bounced back from losses the previous year.
The UBS Global Gender Equality ETF was up 18% in 2023 after losing investors 12% in 2022. State Street’s SPDR MSCI USA Gender Diversity ETF — which trades under the ticker SHE — was up 22%.
Impact Shares’ NAACP Minority Empowerment ETF was the top performer in 2023, generating a 30% return.
There has been a plethora of studies showing that diverse businesses that feature more women and minorities at the top perform better. But gender funds, which target such companies, have historically delivered a mixed-bag performance.
A Robeco spokesperson said its Gender Equality Equities fund tends to own more companies in the healthcare, consumer and financial sectors that fit the fund’s objectives to support companies with valid pay equity practices and strong talent retention programmes.
“With the global market valuation in the top of its long-term range, we suspect investors will reallocate to many of these unloved areas of the market that have lagged relative to the AI-mania names,” they said.
To contact the author of this story with feedback or news, email Kristen McGachey
