Exchange-traded fund issuer State Street Global Advisors (SSGA) created a stir in 2016 with the launch of the SPDR MSCI USA Gender Diversity ETF (SHE) and the installation of the Fearless Girl statue staring down the famous Charging Bull statue in lower Manhattan.
A concession was made to move the statue from its spot in front of the bull to just south of the corner of Wall & Broad Streets, where she stands now, facing down the entirety of the New York Stock Exchange and its old boy club legacy. And now, that club looking up to another fund, the Hypatia Women CEO ETF (WCEO) .
Regular readers know I’m not a big fan of these kinds of best-effort approaches, as they tend to end up as homogenized versions of what started as a strong, bold idea. This is why Tuesday’s launch of the Hypatia Women CEO ETF caught my interest, as it has a strong strategy that is easy to understand for investors and easy to implement for the fund issuer.
The new fund comes off the heels of SHE, which was marketed as an acknowledgment of the rise of gender diversity in boardrooms across the country. The index methodology, like many early and even current environmental “ESG”-focused funds, took a best-efforts approach to selecting companies that had what index provider MSCI felt was enough exposure to women in executive positions including board seats as well as overall diversity representation in those same positions. Also included in these scores were diversity training efforts, as well as levels of senior management oversight and inclusion in diversity training programs.
Founded in 2007, Hypatia Capital bills itself as “an investment management firm focused on sponsoring female CEOs and investors.” Since then, it’s built a network of over 1,000 board- and executive-level women. In 2020 it launched the Hypatia Women Hedge Fund Index with calculation agent Wilshire Indexes, which tracks woman-owned and managed hedge funds and also provides a mechanism to foster allocation to these funds. The next year it launched another index that tracks companies that are run by women, the Hypatia Women CEO Index which is used as the basis for WCEO. The security selection criteria for this index are that a company must have a female CEO, have at least a $500 million market capitalization, have a primary market listing in the U.S., and be actively publishing 10-Ks and 10-Qs.
Using these filters, the fund currently has 118 holdings with a lot of familiar names like Nasdaq Inc. (NDAQ) , United Parcel Service (UPS) , Northrop Grumman Corp (NOC) , and Oracle Corp (ORCL) . What I always find interesting is how two seemingly aligned strategies can sometimes end up being radically different in practice. Case in point is WCEO and SHE. SHE has 281 equity positions and WCEO has 118, yet they only share 25. In other words, Holding SHE means you would only have a 21% exposure to WCEO, and holding WCEO means you would have just under 9% exposure to SHE.
Wrap It Up
From my perspective, if you are championing an investment strategy, invest in that strategy. The rest of your portfolio allocation can provide whatever offset, hedge, or complementary position you feel necessary to maintain a comfortable overall risk profile.
As a product developer, if you’re trying to capture a strategy in a fund and you can’t do so cleanly because there are not enough names or it’s too difficult to isolate the factor, event, or growth then perhaps heeding the Jurassic Park quote of “your scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should” could be helpful.
There are plenty of papers and articles that tout the effectiveness of women in executive leadership positions like this article from the BBC, this SSGA-sponsored study by Korn Ferry, or this piece from Harvard Business Review. Some in the ETF space dismissed SHE when it launched for what would be described now as being too woke. I wasn’t too keen on it because of what I like to call the squishiness of the security selection process and the lack of focus on a clearly defined strategy.
From what I can tell, WCEO doesn’t suffer from either of these issues. I do hope that fund, and the firm have a much better outcome than the original Hypatia and I can’t wait to see if and when they come out with an all-woman version of a fund that track founder-run companies, like an all-woman BOSS. Until then, WCEO is getting a spot on my watchlist until markets start to settle down and set a solid floor for the next upturn.