Investment funds that favour companies with women in leadership roles are a fairly new theme being presented to Canadian investors, but one with a well established history south of the border.
As with socially responsible investing in general, pro-feminist strategies narrow the range of eligible holdings, which puts them at a disadvantage to money managers who have no such constraints. But this is not a significant impediment to generating competitive returns. After all, companies that discriminate against women in executive or governance roles or in the workplace are shrinking their talent pool, to the detriment of the companies themselves.
The small group of Canadian-domiciled funds that promote gender diversity and women's leadership in their investment mandates lack any meaningful performance history. But for those who want to support these social goals through their investments, the funds provide an opportunity to align investors with their values.
Here in Canada, the newest offering is an exchange-traded fund, Mackenzie Global Leadership Impact (symbol MWMN), which opened for trading on Dec. 4 on the NEO Exchange. It has the same strategy, name and portfolio sub-advisor as a mutual fund that Mackenzie Investments launched in October.
Several weeks earlier, Evolve North American Gender Diversity Index (HERS) became the first Canadian ETF with a gender-diversity mandate. It was launched in September as one of the first two ETFs sponsored by Evolve Funds Group Inc.
Preceding both Mackenzie and Evolve by more than a year was BMO Investments Inc., with BMO Women in Leadership, a mutual fund launched in April 2016.
The Mackenzie funds, both global in scope, are sub-advised by U.S.-based PAX Ellevate Management LLC, a partnership between Pax World Management LLC and Ellevate Asset Management LLC. Their joint ventures include the US$173-million Pax Ellevate Global Women's Index, a pioneering mutual fund for U.S. investors that was launched in October 1993.
Highly rated by Morningstar in terms of social responsibility, the U.S. fund rates in the middle of the pack for risk-adjusted returns. It has the top Morningstar rating for sustainability, based on its composite score for environmental, social and governance (ESG) criteria. For its investment performance, it has a 3-star Morningstar Rating versus its global-equity peers among U.S. retail funds.
The Mackenzie mutual fund and ETF will generally include stocks that are constituents of the Pax Global Women's Leadership Index. But according to the prospectus, sub-adviser Pax Ellevate will overweight exposure to companies that have "more highly favourable gender-leadership characteristics."
Pax Ellevate's gender-analytics ratings criteria include representation of women on boards of directors and in senior executive positions, especially CEO and chief financial officer, and corporate policies that demonstrate a commitment to advancing and empowering women.
Also favoured are companies that are signatories to Women's Empowerment Principles, which were developed in a collaboration between the United Nations Entity for Gender Equality and the Empowerment of Women, and the United Nations Global Compact. In addition, Pax Ellevate employs other ESG screens that are not gender-specific. It specifically excludes tobacco companies and weapons manufacturers.
The management fee for the Mackenzie ETF is 0.60%, which covers most expenses. That compares with the mutual fund's management fee (not including expenses) of 0.60% for the fee-based units, 1.60% for Series A for sale by commissioned dealers, and 0.85% for Series D for discount-brokerage accounts.
The major difference between the Mackenzie strategy and those of BMO and Evolve is geographical. The latter two are positioned as North American rather than global, though all three hold most of their assets in U.S. companies.
The Evolve ETF's benchmark is the Solactive Equileap North American Gender Equality Index Canadian Dollar Hedged. The ETF holds U.S. and Canadian companies that have demonstrated commitment to gender diversity as part of their social responsibility strategy.
The index provider ranks stocks according to its Equileap Gender Diversity Scorecard, selecting the top 150 companies. The four categories of rankings criteria are gender balance in leadership and workforce; equal compensation and work-life balance; policies promoting gender equality; and commitment to transparency and accountability. To be eligible, holdings must have a market capitalization exceeding US$2 billion and a three-month average trading volume of at least US$5 million. The index is reviewed and rebalanced quarterly, weighting companies equally on each quarterly adjustment day.
Evolve charges a management fee of 0.40%, plus an administration fee of 0.15% that covers most of the ETF's expenses.
The BMO mutual fund is managed internally by BMO Asset Management Inc., which makes extensive use of the Barclays Women in Leadership North America Index but does not restrict itself to the index holdings or weightings. For instance, the BMO fund's portfolio managers may invest up to 10% of its assets in non-North American securities.
The Barclays index constituents are companies that have a female CEO and/or a board of directors with at least 25% female members. To be included in the Barclays index, constituent companies are also screened for market capitalization and trading liquidity.
Though too new to have performance or sustainability rating from Morningstar, the BMO fund is old enough to have a 12-month return. The Series A units, available from bank channels or commissioned dealers, returned 7.9% in the 12 months to Nov. 30, trailing the average North American Equity fund by 4.8 percentage points over that period. Still lagging, but not by as much because of a lower fee hurdle, were the Series D units for discount-brokerage accounts. Series D's management-expense ratio is 0.90%, compared with Series A's 1.74%.
Judging by the large number of holdings in all three investment mandates, there's apparently no scarcity of choices for those who wish to invest like a feminist. The Mackenzie mutual fund has about 400 holdings, compared with 180 in the BMO mutual fund and 150 in the Evolve ETF.
As for specific holdings, there wasn't a single stock that made it into the most recently published top 10 holdings of all three strategies. And only one stock -- 
Procter & Gamble Co. (PG), held by the Mackenzie and BMO funds -- was a top 10 holdings in more than one of the strategies. The holdings disparity suggests that while all three strategies share similar social objectives, their investment returns will deviate from each other.
