SHE: The ETF That Trades on Female Empowerment

Two star fund chiefs spearheaded an ETF that tracks companies led by women. Now investors are waiting for the results and are skeptical as to its gender diversity efficacy.


When one of Chris Ailman’s three daughters, a math and philosophy major, interned at NASA, she called her dad to say how “cool” it was that women made up half the crowd at a work event. Soon enough, though, the luster burned off: At the space agency the women were primarily in support roles, and the men were the engineers. Ailman, chief investment officer of CalSTRS, which provides pensions to California teachers, emphasizes that the disappointment was enough for his daughter to cross NASA off her list of potential employers.

I was interviewing Ailman and Kristi Mitchem, an executive vice president at State Street Global Advisors, who coincidentally also has three daughters, the day in early March that the duo rang the closing bell at the New York Stock Exchange to celebrate the launch of a new exchange-traded fund. The ETF tracks an index of companies in which women are well represented in senior leadership. The idea is that these firms will outperform and exhibit less volatility than their less female-inspired peers. (Mitchem has since taken a bit of her own advice, that women should shoot high, and on June 1 will start as president and CEO of Wells Fargo Asset Management.)

CalSTRS has invested $250 million in SSgA’s ETF as the anchor investor. Kristi says that when the name of the ETF was suggested, they raced to find out if it was taken. SSgA, in a first for the fund firm, is giving a percentage of revenues to charities that work with schools to eradicate the bias that steers girls away from science, technology and math careers.

When I first heard of the ETF, I was dismissive of the idea. It’s hard, however, to ignore the evidence of how underrepresented women are in corporate America, and I’d like to see that change.

At the same time, though, I’m often skeptical of the efficacy of some of the programs to bolster gender diversity. And I know I’m going to get some colorful comments for this — but it’s hard to believe that women manage all that differently from men or that they would have helped businesses steer clear of risks such as those that led to the late-2000s financial crisis or environmental disasters like BP’s oil spill in the Gulf of Mexico.

But I respect Ailman and Mitchem. Last year I interviewed Ailman for a video series we were producing about the importance of character in choosing asset managers. Not just because seeking that quality is the right thing to do, but because investors who have admirable character traits like patience, persistence and the fortitude to hold contrarian opinions in the face of opposition deliver better results. I’ve known Mitchem since her days at Barclays Global Investors. (Sadly, her spokeswoman who introduced us in the 2000s, Annette Bronkesh, passed away last month.)

Ailman’s views on character and investing are in alignment with his opinion about the index that SSgA developed. He’s not about to invest in something just because it’s the right thing to do. It has to make money.

“I can’t give up returns,” says Ailman. Mitchem tells me that the methodology focuses on the top 1,000 stocks in the U.S., ranking them on the number of women in senior leadership positions, the number of women on the board and the number of women in the C-suite. SSgA then constructs an index based on these scores that is sector neutral.

What Mitchem thinks is different about her index is not just that it includes companies that may have a female CEO or even companies with gender diversity among the board. The real difference in this collection of companies is that there are women dotted throughout senior leadership.

I’m onboard with SSgA’s thinking when she says, “Balanced teams of women and men making decisions together breaks groupthink.” I know enough about groupthink to know how dangerous it can be. Who doesn’t love living in an area or working for a company where everyone is just like you, drinks the same beer and bashes the same politicians? Everyone in the neighborhood — or on the project team — is preaching to the choir, right up to the moment the product demo fails or the customer acquisition line on the chart goes south.

Ailman, whose board started pushing in 2003 for increased gender diversity within the money management companies that oversaw its investments, spoke as part of a panel on the topic at the Milken Institute Global Conference two years ago. A year later he sat on another panel, that time with Mitchem. “It was a year later, but the movement was still minute!” he says. Ailman had been studying different methodologies to isolate companies with gender diversity, but he didn’t like anything — until SSgA’s idea. CalSTRS’ investment in the ETF is part of the portfolio’s enhanced index allocation.

I asked Mitchem to talk about the limitations in other methods of assessing companies based on the roles and proportion of women. She goes back to SSgA’s process, which scores companies on three different measures. “You can’t judge a company based on having a woman CEO. That’s one person. And boards don’t run companies,” she rattles off. Ailman jumps in: “A team whose members have the same education, the same background, makes catastrophic mistakes. No one in the room is asking, ‘Why are we doing this’?” he says. I think to my own example of living in a ZIP code characterized by a very particular demographic: the New Jersey suburbs. We throw the best parties, but we never believe our stuff stinks.

As we packed up our bags, so Mitchem and Ailman could get on their way to the bell ringing, Ailman reiterates his points about wanting to gather people who truly think differently. He says men think linearly, whereas women can often be better at taking random facts and connecting them into a coherent picture. “We live in complicated times for markets,” he adds. “Our teams have to integrate obscure sets of data, jumping from China to Brexit, back to the U.S., all the time.”

Although the methodology has been back-tested, of course, Ailman is cautious about predicting any outperformance for the ETF at this point. “But,” he continues, “I predict less volatility.”

Follow Julie Segal on Twitter at @julie_segal.

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