Can Sex Boost Your Portfolio’s Returns?
We don’t shy away from controversy.
And occasionally, it fires people up…
Case in point: Three months ago, Steve McDonald’s “Slap in the Face” Award about women and finances struck a chord with our readers.
It wasn’t a good one.
In the segment, Steve bestowed the award on all of the women in this country who refuse to get involved in investing.
Some Wealthy Retirement readers called him sexist.
And while many found his commentary insulting, I was amused.
You see, many readers missed Steve’s point…
He wasn’t bashing women’s financial performance, he was praising it.
He simply said that, as a broker, he found that women have superior instincts when it comes to investing.
I couldn’t agree more.
And research backs it up. A number of studies have concluded that women are actually better investors than men are.
One of the most famous studies is called “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment.” Terrance Odean of the University of California, Berkeley, and Brad Barber of the University of California, Davis, conducted it in 2000. The study showed that single women outperform single men by 1.44% a year in the stock market.
And recently published data from Fidelity Investments demonstrated that female investors outperform men year after year.
As one of Wealthy Retirement’s female contributors, I felt it was my duty to take this research a step further…
I wanted to see if female CEOs increase shareholder returns. So I analyzed the members of the S&P 500.
What I found, honestly, shocked me.
I looked at the performance of S&P 500 companies since they hired a female CEO to now. And companies led by women have outperformed the broader markets by an average of 104%!
These companies saw their stock prices rise 170%, while the S&P gained only 67%.
Female Leaders Reach Record Highs
Today, the number of women running S&P 500 companies is at a record high.
Of the 504 companies included in the index, 29 of their CEOs are women. Even though women make up more than 50% of the population, women fill the top slots of less than 6% of the companies in the S&P.
But it’s leaps and bounds from where we were 10 years ago when less than 3% of S&P 500 companies were led by women. And the trend is paying off in spades…
Marillyn Hewson has been CEO of Lockheed Martin Corp. (NYSE: LMT) since 2013. Since she landed the role, Lockheed Martin’s stock has risen by more than 255% versus the S&P 500’s 87% increase.
And Lisa Su was named CEO of semiconductor company Advanced Micro Devices (Nasdaq: AMD) in 2014. During her tenure, the company’s stock has gone up nearly 296% versus the S&P 500’s 31% rise.
Admittedly, with only 29 female CEOs, the sample size for my research was small. And the outperformance of one stock skewed the results…
Healthcare REIT Ventas Inc. (NYSE: VTR) has been on fire since CEO Debra Cafaro took the job in 1999. Ventas’ stock price has soared 2,651% compared to the S&P 500’s 177% return.
But even if we remove this outlier, female-led companies still trounced the S&P 500 by 19%.
Of course, not every female CEO has done a great job for shareholders. Yahoo’s Marissa Mayer is a prime example…
She resigned after Verizon completed its acquisition of Yahoo in June. So she was excluded from this analysis.
“Anything You Can Do, I Can Do Better”
There’s been a lot of speculation surrounding why female CEOs surpass men when it comes to shareholder returns.
I think it may be because women have to work harder to reach the CEO position of these big companies.
Unfortunately, as the above statistics show, the “glass ceiling” is still alive and well in 2017. And these female CEOs have to be powerhouses to break it. They really are the best of the best.
In Steve’s controversial “Slap in the Face” Award, he argued that women “have better gut feelings about financial ideas than men did. And if they make the effort, they’re more intuitive investors than men too.”
So does that mean that a CEO’s sex guarantees outperformance? Not necessarily, but my analysis – and the analysis of a number of reputable universities – shows that, at least today, there is a strong correlation.
The bottom line is that female executives are good for stock performance. And while I wouldn’t invest in a company’s stock solely based on the gender of its CEO, I’d definitely consider it.