Are your clients interested in aligning their investments and values in support of gender or racial equality? Several funds launched recently that claim to promote diversity, but which of them are a good fit for your clients?
Financial planning clients are expressing interest in aligning their investments with their values. Racial and gender equality issues are at the forefront of this movement.
For advisors who are crafting an environmental, social and governance investment portfolio for their clients, it is essential to have the inside scoop on which funds are of interest to clients.
We have counted seven funds that target gender and racial diversity, managing nearly $1.4 billion in assets. Some of these funds can be an excellent way to align your client’s investments and values.
Investing In Women’s Leadership
The COVID-19 pandemic had a greater impact on women than it did on men. Many women had to take on more child care responsibilities, reduce their work hours or drop out of the workforce entirely. So investing in companies that integrate women well might be a top priority for your female clients when developing an investment portfolio.
Three exchange-traded funds — SHE, WOMN and FDWM — and three mutual funds — Pax Ellevate Global Women’s Leadership Fund (PXWIX), Fidelity Women’s Leadership Fund (FWOMX) and Glenmede Women in Leadership Fund (GWILX) — invest in women’s leadership.
However, two of these funds — GWILX and FDWM — are tiny, with less than $30 million in assets.
These funds typically select stocks based on the proportion of women in top management and director ranks. Pax Ellevate’s manager, Pax World Funds, also has engaged with companies on gender diversity issues.
Investing In Racial Justice
In the aftermath of George Floyd’s death, racial justice investing also has gained significant ground. If your clients are interested in ESG investing, racial justice investing may be at the top of their list.
Launched in 2018, the Impact Shares NAACP Minority Empowerment ETF (NACP) is the only racial justice ETF.
Pax Ellevate Global Women’s Leadership Fund
Pax Ellevate is the largest and oldest gender equality mutual fund in the U.S. Launched in 1993 by ESG boutique Pax World, the fund invests in companies that advance women through gender-diverse boards and senior leadership teams. The fund was developed in partnership with Sallie Krawcheck. She is a Wall Street veteran who now runs Ellevest, a robo-advisor focusing on women’s investment needs.
Pax World selects stocks from MSCI World, a global stock index. To be included, companies must have an above-average number of women in top management roles and on the board of directors. Pax World also screens out oil and gas, weapons and tobacco companies.
The fund holds more than 400 global stocks — including Microsoft, Amazon and Estee Lauder — as its top holdings. Two-thirds of the portfolio is allocated to U.S. stocks. The rest is in international — primarily European — stocks.
The fund manager, Pax World, has always focused on socially responsible investing. Pax World files pro-diversity shareholder resolutions, including gender-pay equity at Oracle and Mastercard. The fund’s performance has been in line with the MSCI World index, which tracks global stocks.
SPDR SSGA Gender Diversity Index ETF
Launched in 2016, SHE invests in large-cap U.S. companies with a high percentage of women who are executives or directors. State Street famously advertised this fund by commissioning the Fearless Girl statue in Manhattan’s Financial District
The fund picks stocks from the top 1,000 U.S. companies and weighs them based on market cap. Companies in the top 10% on gender equality metrics in each sector are included. Each stock is capped at 5% of the fund.
SHE has 165 holdings, with around 27% of the fund invested in tech. The top three holdings are Visa, PayPal and Walt Disney.
SHE is relatively inexpensive, with only a 0.20% expense ratio. The caveat is that the fund’s manager, State Street, has not consistently voted in favor of pro-gender equality shareholder resolutions. For example, Morningstar pointed out that between 2016 and 2018, State Street voted in favor of only 19% of the gender-equality resolutions that came before it. However, large asset managers, including State Street, are increasingly supporting ESG shareholder resolutions.
Fidelity Women’s Leadership Fund
Started by Fidelity in 2019, Fidelity Women’s Leadership Fund is an actively managed mutual fund that invests in large-cap and mid-cap U.S. stocks. The fund is managed by a woman, Nicole A. Connolly. She previously invested in natural resources, utilities, technology and emerging markets.
To be included in the fund, companies must have:
» Women in the key leadership roles, or;
» At least one-third of the board positions held by women, or;
» Policies (such as parental leave) aimed at attracting, retaining, and promoting women (such as parental leave).
The fund has around 140 holdings, including Microsoft, Disney, Accenture, Anthem and Nasdaq. Although the fund has beaten its benchmark, the Russell 3000, since inception, it costs more than other gender equality funds.
NACP — The NAACP Minority Empowerment ETF
NACP is the first and only ETF to promote racial equality. It’s a small fund investing in large-cap and mid-cap U.S. stocks. It is also the first fund launched by Impact Shares, a provider of socially conscious ETFs.
The stocks in the fund are selected using the NAACP‘s scoring criteria. These criteria include board diversity, anti-discrimination policies, community engagement and diversity programs.
The fund maximizes exposure to the highest-scoring companies while mimicking the risk-return characteristics of the broad market.
The fund owns around 190 stocks and has about 34% of its assets in technology companies. Its top investments are Apple, Microsoft and NVIDIA.
In addition to NACP, there are other ways to give clients exposure to racial justice investments. For example, clients could lend to community development financial institutions. CDFIs lend to underserved communities, including people of color.
Impact Shares YWCA Women’s Empowerment ETF
Launched in 2018, WOMN tracks an index of large-cap and mid-cap U.S. stocks that score high on gender diversity. To come up with the scores, the WOMN’s index gives each company a rating for gender balance in leadership and workforce, equal compensation and work-life balance, and policies promoting gender equality.
The algorithm then selects about 200 stocks with the highest scores while maintaining a marketlike risk and return. Companies involved in ethical controversies and industries such as weapons, gambling and tobacco are excluded.
WOMN is a small fund with just over $30 million in assets under management.
The current movement for investors to align their money with their values is well underway and is likely to accelerate as time goes on. This is an excellent opportunity for financial advisors to differentiate themselves and to add additional value. Clients want a unique financial plan that can deliver on their goals while aligning their values, beliefs and investments. Armed with the right knowledge, financial advisors can deliver just that.
Anders Skagerberg, CFP, has worked as a financial advisor for high-net-worth families and a director of financial planning operations for Facet Wealth. Currently, he is a tax expert and a financial writer. He may be contacted at [email protected]. Learn more at https://sustainfi.com.