Female Fund Managers Perform as Aptly as Males
February 6, 2006
Male and female mutual fund managers employ different strategies but achieve very similar results, according to a study released by researchers at the University of Cologne in Cologne, Germany.
While women may be more methodical, and men more aggressive, in terms of portfolio turnover, researchers who compared the performance of more than 1,000 mutual funds with a single manager during the decade between 1993 and 2003 found that overall, the net return to shareholders of those funds managed by men, compared to those managed by women, was virtually equal.
"These results suggest that the market for mutual fund managers is efficient in the sense that it is not possible to find superior managers just by looking at an obvious characteristic like the manager's gender," noted the study, called "Sex Matters: Gender and Mutual Funds."
Still, report authors Alexandra Niessen and Stefan Ruenzi found that while a fund manager's gender had little bearing on the measure about which shareholders care most - performance - the sex of a manager may significantly impact the public perception of that fund. "Many investors consider women less able to manage money," Niessen and Ruenzi wrote.
That perception may only be bolstered by the reality that mutual fund management remains a male-dominated field. In the 10 years that the study covered, the proportion of female fund managers hovered at 10%.
"I don't really think it's people sitting around saying, I'm not going to invest in that fund because it's a woman," said Cynthia Kopec, president of the Financial Women's Association of San Francisco. "It's really about what opportunities there are for women."
Niessen and Ruenzi noted that those opportunities are few, perhaps by design. The researchers suggested that major U.S. fund companies hire only enough female fund managers to skirt lawsuits claiming discrimination or complaints that a company avoids equal opportunity employment rules.
"While [mutual fund] investors are directly interested in performance, fund management companies care more about inflows of money," Niessen and Ruenzi wrote.
More often than not, those managers are men, the study noted. Inflows to female-run funds over the 10-year period lagged behind those to male-managed mutual funds by 18% per year on average, according to the study. Female-managed mutual funds tended to be smaller, too. The average female-managed fund had $676.5 million under management, while the average male-managed fund represented $806.1 million. Likewise, male mangers had slightly longer tenure than their female counterparts, with 5.22 years, compared to 4.17 years for women.
Nonethless, Kopec remains confident that investors will be able to see beyond those statistics and focus on managers' performance.
Fund managers should be judged based on their track record for overall management, Kopec said.
In many areas, men and women measure up pretty evenly, according to Niessen and Ruenzi. For example, the researchers found no significant difference in the fees levied by each. Funds managed by women had an average expense ratio of 1.42%, compared to 1.48% for men, while the average load associated with female-managed funds was 2.62%, compared to 2.09% for male-managed funds.
When it came to management style, men and women varied vastly. However, the researchers found that men and women displayed similar levels of risk, disproving many long-held common assumptions about women and investing. "We find only weak evidence," the report stated.
Niessen and Ruenzi reasoned that in order to become a fund manager in the first place, whether the person is male or female, they must have a certain risk tolerance. Therefore, they said, especially risk-averse females are naturally weeded out early in their professional careers.
They also discovered that women were more likely than men to sell losing stocks quickly, whereas men tended to hold onto once-hot stocks longer.
Female fund managers also demonstrated a more consistent investment style, and traded less frequently than their male counterparts.
"The behavioral differences between male and female fund managers suggest that investors preferring moderate and stable investment styles should invest in female-managed funds, while more daring investors interested in taking more active bets should choose male-managed funds," according to the report.
Female-managed funds can help educate investors by marketing themselves on the appeal of their approach and proof of their competitive performance, the report said. The law of supply and demand shows that as investors better understand the difference in approach, they will want more choices. Companies will scramble to supply funds that meet these demands, and with that may come more gender parity, according to Niessen and Ruenzi.
And that is the bottom line, according to Kopec. "It's really about finding a portfolio manager who meets your requirements, regardless of their gender," she said.
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