How women are giving investment trusts an edge

The fact this percentage has increased from 31% over the past five years should be celebrated, particularly in the context of International Women’s Day on 8 March. But even if you’re not remotely interested in an event that calls out the social, economic, cultural and political achievements of women, you should be pleased about the rise of women in the investment trust industry. There’s every chance you’ll be better off because of it.

The data is compelling. In one recent study of the past five years, MSCI found that companies where at least 30% of the board comprised women have achieved cumulative returns that are 18.9% ahead of those that don’t meet this threshold.

A longer-term project, conducted by Morgan Stanley, found companies that take a holistic approach towards equal representation outperformed their less diverse peers by 1.6% per year between 2011 and 2022.

Elsewhere, the consultant McKinsey has published research showing that diverse boards are 43% more likely to deliver above-average profits. BCG investigations point to six dimensions of diversity that correlate closely to innovation.

Research even suggests that women invariably make better investors then men. A study from Warwick Business School found that women’s investment portfolios outperformed men’s by 1.8% annually. They traded less frequently, were more risk-aware and prioritised steady, compounding gains over short-term gambles.

It’s only fair to point out that in the case of investment trusts, women directors aren’t making portfolio decisions – and the AIC says the industry needs to do more to increase the number of female fund managers. Again, that would likely produce benefits for investors in terms of higher returns, as well as being important from the perspective of gender equality.

Still, the fact so many investment trusts are embracing diversity – the number of directors with an ethnic minority background is also growing – is important. It provides them with a critical competitive edge in terms of the overall value proposition for investors.

What actually drives that edge? In practice, most research suggests that what women bring to the boardroom is different views, different experiences of life and different ways of thinking. Different isn’t necessarily better, but the change of perspective really matters – it’s how you begin to cut through the groupthink that leads to poor decision-making based on seeing the world though a single lens.

In the context of investment trusts, this only works if the board is prepared to hold the fund and its manager to account. But the evidence of recent years is that investment trust boards are doing a far better job in that regard, from demanding action at underperforming funds to replacing managers completely if they continue to disappoint. Indeed, one factor driving the increasingly activist nature of investment trust boards is almost certainly the rise of the female board director.

There’s plenty more work to do, most obviously at the fund management level, as the AIC rightly points out. But there are also achievements to recognise, not least those of the female pioneers who led the charge in the industry. Investment trust shareholders have much to be grateful for – even if their primary concern is the returns they’re earning.