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Passive and Team-Managed Funds Prove More Inclusive

Women have better odds of running funds in growing parts of the industry.

Madison Sargis and Laura Pavlenko Lutton, 04/11/2017

While women remain significantly underrepresented in fund manager roles worldwide, our comprehensive study showed notable gains in some areas. Women are more likely to manage a passive fund than an active fund, and they’re more likely to be chosen to run a fund of funds than a fund that buys and sells individual securities. Women are more likely to share management responsibilities with others, while women on their own oversee a lower number of funds.

Our study looked initially at where women are managing funds by geography. From there, the goal of our modeling exercise was to determine if certain characteristics are more prevalent among funds with managers who are women relative to those run by men. To begin, we defined our dependent variable to be the manager’s gender and then we deployed a logistic regression to our data. Our technique allowed us to measure gender among each independent variable, so our model told us the change in odds of the manager being a woman for a typical, one-unit increase in each variable. We controlled for factors such as region, fund age, and manager tenure so we could be certain that our results were not swayed because of regulatory regimes or because opportunities are skewed based on the fund’s age or the tenure of a manager.

Active Exclusion
One of the most statistically significant findings of our study is that a woman is more likely to manage a fund that closely tracks an index than to manage a fund that is actively managed, meaning it deviates from the benchmark index. The odds of a woman managing a passive fund over an active fund in the same asset class is 1.36:1. (Relative odds of 1:1 would indicate an even chance.) For a fixed-income fund, her odds of being named a passive fund manager over active are 1.23:1. And a woman’s odds of running a passive allocation fund versus an active fund are the highest: 1.41:1.

At first glance, we could assume that women are benefiting from a growth area for the industry. One might argue that women are earning jobs as passive fund managers because more passive funds are being launched, and that it is easier for a woman to earn a newly created position than unseat the existing manager of an established fund.

Our study’s construction, however, indicates that women’s odds are improving beyond industry growth. In our model, we controlled for both the age of the fund and the manager’s experience level. We also ran our study each month to capture as much of the industry shift to passive management as possible. Put another way, the controls allow us to determine whether a woman’s odds of managing a passive fund have increased or decreased absent of industry trends, and we find that women still are far more likely to manage passive funds than active funds.

Conversely, our study found that women have lower odds of managing an active fund, which is a longer-established portion of the mutual fund industry. We do not suggest, however, that women are moving from active to passive management. Active fund management requires different skills than those required to manage passive funds. With active funds, the manager aims to deliver higher returns than the fund’s benchmark index by assembling a portfolio of securities. Active managers are responsible for every investment decision. With passive portfolios, the fund manager’s objective is to deliver returns that match the benchmark and ensure that the owned securities meet the outlined investment criteria.

Our analysis cannot tease out whether women are being disproportionately offered passive-management roles or if they are expressing a preference for them. Regardless, the data tell us that the average fund manager who is a woman is less likely to be involved in active management.

Madison Sargis is a Quantitative Analyst at Morningstar.

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