Gender Lens Investing: How Strong are Funds’ Intentions?

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.
• How funds describe themselves.

The 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.

In October, Morningstar debuted the Sustainable Investment attributes, a data set identifying funds that explicitly reference any kind of sustainability, impact, or ESG strategy in their prospectus or offering documents.

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.
• Impact Shares YWCA Women’s Empowerment ETF (WOMN), which was launched in August 2018.

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.

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.

Of the three funds reviewed, State Street’s SHE voting record is the least aligned with gender and diversity and with the investment objective stated in the fund’s own prospectus, namely, to invest in U.S. companies that “are leaders in advancing women through gender diversity on their boards of directors and in management.”

The March 2016 press release accompanying its launch articulates an even more lofty goal: “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.”

State Street’s "Fearless Girl" initiative shows a commitment to improving board diversity, with its public placement of a statue in New York—a call to companies in their portfolios to increase the number of women on their corporate boards—and public statements around State Street’s intention to use proxy voting power if companies fail to take action. Furthermore, the firm recently reported that it voted against more than 500 companies’ nominating committees where boards failed to add a female director.

While gender has been an engagement priority for State Street, SHE’s proxy voting record seems less committed.

SHE failed to support eight of the 10 gender and diversity resolutions it faced, voting against six and abstaining on two. Notably, SHE failed to support any of the five pay-equity resolutions that came to a vote in their portfolio over the past three years.

More broadly, across State Street’s suite of mutual funds and ETFs, 63 gender-related resolutions came to vote over the three-year period from 2016 to 2018. They uniformly supported 12 resolutions, voted against 34, and abstained on 17. As a firm, State Street voted in support of only 19% of the gender resolutions.

SHE is evidence that a fund can state an ESG-focused investment objective but can also then vote in opposition on relevant shareholder resolutions.

Advancement to corporate boards starts with equal opportunities to participate in the workforce and equal pay for equal work. Workplace diversity and gender-pay equity resolutions are intended to address structural, cultural, and other barriers to advancement that leave women underrepresented in senior management, the ranks of which provide tomorrow’s board members.

SHE’s failure to support shareholder initiatives that contribute to workplace arrangements, which foster access to the highest corporate positions, seems shortsighted. SHE is voting against the very initiatives that can help address gender inequality in corporate America.

The funds examined suggest that there are varying degrees of intentionality. By acquiring Fund Votes, Morningstar can now measure the level of a fund’s intentionality and conviction behind its words.

Read our Special Report on how women are breaking the bias in 2022.

Madison Sargis is head of Quantitative Research at Morningstar. She 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.