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Gender-Diversity Funds: How Strong Are Their Intentions?

Securities In This Article
Glenmede Women in Leadership US Eq
Impax Ellevate Global Women's Ldr Inv
Impact Shares YWCA Women's Empwrmt ETF
SPDR® MSCI USA Gender Diversity ETF

A prospectus or press release can state a fund’s support for gender-diversity initiatives, but their voting records show their conviction.

With this in mind, we wanted to take a closer look at the level of conviction behind the funds that Morningstar identifies as “gender and diversity intentional.” These are funds that seek to make a measurable impact, alongside financial return, by investing in companies with a record of measuring and improving gender and diversity or related initiatives.

Using Morningstar's holdings database and Morningstar's Fund Votes database, we were able to measure the level of a fund's intentionality in three ways: what funds buy, how funds vote, and how funds describe themselves. Morningstar's Fund Votes database includes mutual fund- and exchange-traded-fund proxy voting data on company resolutions and shareholder proposals, including proposals addressing environmental, social, and governance topics.

What we found suggested varying degrees of intentionality among gender-diversity funds. (The full report is available for Morningstar Direct clients here)

Of the 458 U.S. funds categorized as Sustainable Investments, 15 equity mutual funds and ETFs are flagged as gender and diversity intentional. Based on their prospectus language, five funds are identified as having a primary focus on gender diversity. They include the following: State Street’s SPDR® SSGA Gender Diversity ETF (SHE); Glenmede’s Women in Leadership portfolio (GWILX); the Pax Ellevate Women’s Equity Global Leadership Fund (PXWEX); SerenityShares’ Impact ETF, which recently closed; and Impact Shares YWCA Women’s Empowerment ETF (WOMN), which was launched in August 2018. (WOMN licenses a Morningstar index)

We took a closer look at the votes cast by the three gender-focused funds with a multiyear voting record—State Street’s Gender Diversity Index, Glenmede’s Women in Leadership, and Pax Ellevate—to see how they voted across the 63 gender-related shareholder resolutions.

These three funds cast a total of 47 votes across 32 of the gender-related resolutions that came to a vote in 2016-18.

How the Funds Voted

Pax Ellevate Global Women’s Leadership Fund voted in support of all 23 gender and diversity resolutions on the ballots of portfolio companies over the past three years. Pax, a social-investment asset manager founded in 1971, has a voting history of strong support for shareholder resolutions addressing social and environmental issues. Pax World is itself a filer of social and environmental resolutions, including two of the gender-pay equity resolutions covered by this survey, occurring at Oracle and Mastercard, where it was one of the co-filers with Arjuna Capital.

Glenmede’s Women in Leadership portfolio fund voted affirmatively on all 14 gender and diversity resolutions it faced. Elsewhere across Glenmede’s portfolio of funds, 109 votes were cast on gender resolutions surveyed, with 53 cast for and 56 against. This suggests that the Women in Leadership portfolio votes separately from other Glenmede funds, and that voting is guided by the fund’s stated objective to invest in companies with women in prominent roles.

Pax Ellevate Global Women’s Leadership Fund and Glenmede’s Women in Leadership portfolio both describe themselves in line with the way they vote. (Click image for better viewing)

Of the three gender diversity funds reviewed, the voting record for State Street's Gender Diversity Index is the least supportive of shareholder resolutions addressing gender and diversity, which seems at odds with the investment objective stated in the

namely, to invest in U.S. companies that "are leaders in advancing women through gender diversity on their boards of directors and in management."4 The March 2016 press release accompanying the index's launch went even further:

"SHE seeks to help address gender inequality in corporate America by offering investors an opportunity to create change with capital and seek a return on gender diversity."5

State Street's campaign to promote board gender diversity was launched in March 2017 with the public placement of the "Fearless Girl" statue in New York, and a call to companies in State Street's portfolios to increase the number of women on their corporate boards. The campaign has since been amplified by public statements around State Street's intention to use proxy voting power if companies fail to take action. State Street reports having engaged with a large number of companies over board diversity concerns and having voted against 581 companies' nominating committee chairs in 2018 where boards failed to add a female director.

Yet, State Street's Gender Diversity Index failed to support eight of the 10 gender and diversity shareholder resolutions voted on over the past three years, voting against six and abstaining on two. Notably, State Street's Gender Diversity Index failed to support any of the five pay equity disclosure resolutions—requesting boards to examine workforce gender-based pay gaps—and opposed both resolutions requesting the incorporation of senior management diversity metrics in CEO performance pay.

State Street applies the same voting policy to the Gender Diversity Index as to its other funds. Across the suite of mutual funds and ETFs offered by State Street, excluding its Gender Diversity Index, 891 votes were cast on the 63 gender-related resolutions that came to vote over the three-year period from 2016 to 2018. These were cast uniformly across all funds, supporting 12 resolutions, voting against 34 and abstaining on 17. As a firm, State Street voted in support of only 19% of the gender resolutions.

State Street's Gender Diversity Index's trailing vote record can be attributed to State Street's stated preference for engagement over voting: "Our preference continues to be constructive engagement, and we only take voting action as a last resort," State Street Global Advisors CEO Cyrus Taraporevala wrote in 2018 on the company's web site.

Why Votes Matter

Investment stewardship is the exercise, on behalf of fund beneficiaries, of the control rights inherent in investments. Under SEC rules, fund managers have a fiduciary duty to actively vote their proxies as part of this stewardship responsibility. Managers of mutual funds and ETFs are required to disclose these votes annually.

While good stewardship does not require that funds support every shareholder resolution, where the stated objective of a pool of funds is to promote gender diversity and equality, beneficiaries are likely to take a keener interest in proxy votes on resolutions such as those highlighted in this article.

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About the Authors

Madison Sargis

Head of Quantitative Research
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Madison Sargis is director of quantitative research, a unit of Morningstar, Inc. In this role, Sargis leads a team of quantitative researchers, data scientists, and research engineers, whose key objectives are to strengthen the firm's data and research. Her team develops innovative statistical models, such as the Morningstar Quantitative Rating.

Before assuming her current role, she was an associate director of quantitative research. Sargis joined Morningstar in 2014 as a product consultant and then worked as a client-services team lead before joining the quantitative research team in 2016 as an analyst.

Sargis was recognized as one of Fund Action's Rising Stars of the 2018 Mutual Fund Industry Awards and was nominated for Investment Week's International Investment Woman of the Year in 2018.

Sargis holds a bachelor's degree in mathematics from the University of California, Berkeley, where she graduated cum laude, and a Master of Business Administration from the University of Chicago Booth School of Business, where she graduated with honors. She also is the recipient of the University of Chicago Booth KPMG Scholarship and Leadership Award.

Jackie Cook

Director, Stewardship, Product Strategy & Development
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Jackie Cook is Director, Stewardship, Product Strategy & Development in Sustainalytics’ Stewardship services team. Up to October 2021, she was director of stewardship research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. In her present role, she leads the ESG Voting Policy Overlay offering, which offers clients a specialist ESG voting lens.

Cook joined Morningstar in October 2018 with Morningstar’s acquisition of Fund Votes Research Ltd., a company that she founded in 2007. Fund Votes had been a provider of mutual fund and exchange-traded fund proxy-voting data on corporate resolutions and shareholder proposals across ESG topics. Previously, Cook had been a senior research associate at The Corporate Library (which merged with GMI in 2010 and was acquired by MSCI in 2014) and a junior research fellow at the Centre for Business Research at the University of Cambridge. Over the past 22 years, she has also worked as a consultant on governance research projects for UNCTAD and several nongovernment organizations and has published academic articles on mutual corporate form, investor advocacy, and energy governance.

Cook holds a bachelor’s degree with honors in clinical psychology from Nelson Mandela Metropolitan University, South Africa, and a master’s degree in research psychology from Rhodes University, South Africa. She also holds a bachelor’s degree with honors in economics and management from Saïd Business School of the University of Oxford, where she studied as a Rhodes Scholar.

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