Q&A: Gender Lens Investing With Fidelity Portfolio Manager

When it comes to investing with the intent of promoting gender equity, a strategy called “gender lens investing” is gaining steam.

Applying a “gender lens” approach, which can involve strategies such as investing in women-owned enterprises or companies that promote workplace equity, is at its highest recorded level, according to research by the Wharton Social Impact Initiative and consulting firm Catalyst at Large. The study identified 138 gender lens funds as of 2020, nearly a 59% increase over the previous year. Almost half of these funds launched in 2019.

We spoke with Nicole Connolly, the portfolio manager of the Fidelity Women’s Leadership Fund (ticker: FWOMX), one of the gender equity funds to launch in 2019, about how investors and advisors can apply a gender lens to their investment approaches.

With assistance from her environmental, social and governance, or ESG, team, Connolly spent several years scoring 700 companies, including the entire S&P 500, on 25 criteria to identify diversity leaders and build a diversified fund.

She shares her approach, how investing in gender-forward companies can make a difference in women’s everyday lives and the importance of working with an active fund manager who can engage with companies directly.

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Why should financial advisors and investors focus on companies that are prioritizing female leadership and development?

Investing in companies that are focused on providing equal pay for women, attractive parental leave policies, unconscious-bias training, flexible work environments, return-to-work programs and many other initiatives like these are not only good for business but have become even more critical as we now take inventory of the devastating effects COVID-19 has had on women.

Research from McKinsey & Company shows that 1 in 4 women are stepping back or leaving the workforce, and circumstances are even worse for women of color. Investing in companies that provide an environment that allows women to thrive is critical to help make sure we don’t undo all the progress women have made in the workforce over the past decades.

Does investing in gender-diverse companies really help close the gender gap?

Through engagement with companies, as well as voting on shareholder proposals, we are able to use our voice to help drive progress on accountability around everything from increasing diversity at the board level and across the workforce to making sure women are paid the same as their male counterparts, tracking retention and promotion of women and many other topics.

The progress we make now will make the workplace a more equal and inclusive one. In addition, there is nothing more rewarding than the dozens of notes I’ve received from fathers with daughters invested in FWOMX who have told me that they want to show their daughters at an early age the power of investing over the long term, as well as the female role models in the fund.

[READ: Q&A: BlackRock’s Jeff Rosenberg on Systematic Fixed-Income Investing.]

How do you approach gender lens investing as a portfolio manager?

I’m looking for the intersection of companies committed to diversity and inclusion who are also positioned to outperform because of attractive fundamental attributes.

In creating FWOMX, I listened to the research that demonstrated that it’s the combination of female leadership at the top and a culture of inclusion that helps women thrive, which I believe then leads companies to outperform. This second piece of creating a culture of inclusion is critical and can be missed when just looking at leadership or board statistics.

I look at the leadership of the company. But I also do a deep dive into the philosophy around gender diversity and the initiatives — understanding what kinds of initiatives and policies the company has in place to identify and promote talented women, efforts to help women thrive in the organization, including flexibility, child care benefits, development programs and commitments around measuring and disclosing progress. Also, asking what programs are in place to build a diverse pipeline of talent. I believe in the importance of intersectionality in our work and look at how companies treat the LGBTQ community and individuals with disabilities.

We are also encouraging companies to disclose racial data across their workforces, so we can have a more complete picture of diversity beyond gender. We then engage in thoughtful discussions with the companies we own on these key issues. This level of due diligence is simply not possible in an index product.

With help from our ESG team, I have spent the last three years scoring 700 companies, including the entire S&P 500, on 25 diversity criteria. This is a very manual and time-intensive process. Through this ranking process, I can seek to identify the leaders in diversity by sector and use this data to build a diversified fund with exposure to every sector in the market. Once I do the diversity assessment, I evaluate the strength of a company’s business model, the characteristics of the industry it operates in, its competitive position, growth outlook and valuation.

[Read; Q&A: David Rosenberg on Economic Recovery and a Stock Market Bubble.]

What are the opportunities advisors should be aware of when applying a gender lens to their investment approach?

A substantial opportunity exists in the advisor space for conversations that go beyond traditional factors like risk and time horizons to get at the heart of what many clients care about — topics like the environment and diversity.

These conversations have the potential to get more people from the household to participate in the investment conversation and create a stronger relationship between the advisor and their client.

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Q&A: Gender Lens Investing With Fidelity Portfolio Manager originally appeared on usnews.com

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