In this article, we examine how professional women investors manage their portfolios, to which extent their strategy is different – and sometimes, better – on average than men. The world of finance is not solely at the hands of men anymore, and we are starting to see visionary women like Cathie Wood shaking up the markets.
An overall outperformance
Based on newer research, it was found that women fund managers regularly outperformed their male counterparts. This time though, it seems to have nothing to do with risk aversion as some older studies suggested, but more with high-quality decision-making skills.
A recent study by Goldman Sachs showed that 48% of female managed funds outperformed the market in the last year, compared to only 37% for all-male funds. Women-led funds also showed greater resilience during the March downfall of 2020.
The same scheme was observed from 2000 to 2009, with women-managed funds delivering almost double the performance, and much higher resistance to the 2008 crisis, falling 9.6% in value on average vs. 19% for male-run funds. What are the reasons behind this?
Of course, not all studies support this. A Morningstar study was more nuanced, showing that women were better at managing fixed-income instruments (only slightly) and men were better at managing equity funds (but only slightly, as well).
Women have a positive impact on decision-making
Women bring something important to the table when a group needs to make decisions, such as which stocks to buy. They tend to have better listening skills, and the capacity to consider diverging viewpoints and opinions.
This idea is supported by academic research, as it states that the presence of a diversity of any kind improves the decision-making quality and comprehensiveness in a group, stopping it from engaging in what we call “groupthink” – when everyone will simply follow the average tendency of the group.
Further research found that companies with women in the top management also performed better. Researchers suggest that women tend to have a management style that encourages listening and sharing, sparking up new and better ideas at a higher frequency.
Women take… more risks!
While this may seem contradictory compared to what we have said in the first part of this article, unlike in their personal finances, women are not more cautious in the professional world. On the contrary.
The difference is that the risk aversion difference that has been observed between men and women is a socially constructed one. Women tend to be more cautious with their personal finances because of stereotypes imposed on them.
When they enter the business world and have more female colleagues, this outside pressure lifts off, and they take more risks. This even has a snowball effect in mixed teams: when men see women take more risks, they feel threatened and respond by taking more risks. Seems like both women and men struggle with external social pressures regardless of one's sex.
In the professional world, women-led funds tend to outperform men-led funds, as diversity leads to more quality decision-making. It was even found that the risk aversion experienced in their personal finances disappears.