Calculating Risk and Investing Wisely

Why You Should Invest Like A Woman

They’re better.

There’s compelling evidence that women investors tend to outperform their male counterparts.

Here’s a summary of those findings and what we can learn from these studies.

Gender diversity and fund performance

A study by Stephen Lawrence at the Vanguard Group examined a dataset of 2600 US active equity funds from 2008 to 2021.  The investment management teams of these funds were predominately male.  Almost 55% of them had no female representation.

The study found a significant difference between the performance of single-gender teams and teams with a mix of men and women.

The most robust performance was exhibited by funds, where the fraction of women was more than 50% but less than 100%.

All-male funds performed the worst.

Women individual investors outperform

An analysis of more than 5 million Fidelity customers over ten years found that, on average, female investors outperformed their male counterparts by 0.4% per year.

Notwithstanding this stellar track record, only one-third of women surveyed perceive themselves as “investors,” and only 19% felt confident selecting investments that align with their goals.

Female hedge fund managers outperform

A study of the performance of hedge funds in the United Kingdom examined the difference in the performance of hedge funds managed by men and women.  Women represented only 16.2% of senior management positions in the hedge fund industry in the UK.

UK funds managed by women outperformed their male counterparts by 0.39% after five years.

Another study found that hedge funds run by women (in the HFRI Women index) returned 4.4% over five years, compared with 4.2% for a broader index of hedge funds across all strategies and genders.

A particularly striking study from Hedge Fund Research (discussed here) found that from January 2000 through May 31, 2009, women-led hedge funds nearly doubled the performance of their male counterparts.

Female mutual funds managers outperform

A study of mutual fund managers in 2022 found that women-led or co-led portfolio management teams outperformed their male counterparts in global large-cap equity funds.

The median return of women-led or co-led funds was -2.6% compared to -5.9%.

Women in portfolio management teams comprised only 14% of the global sample.

How can we explain the general outperformance of female investors and fund managers?  Here are some explanations.

Less trading

A study by Vanguard may have uncovered one of the reasons for this outperformance.  It took an in-depth look at the investment behavior of retirement plan participants and found that women traded about 40% less frequently than men.  Women were also more likely than men to hold a single target-date fund.

A seminal study by Brad M. Barber and Terrance Odean analyzed the impact of trading on investment performance.  It examined the returns of 66,465 households with accounts at a significant discount broker between 1991-1996.

Accounts that traded the most earned an annual return of 11.4 percent, significantly underperforming market returns of 17.9%.

The authors concluded:  “Our central message is that trading is hazardous to your wealth.”

Better risk assessment

According to an article in the Harvard Business Review, women take fewer risks when picking stocks, investing in venture capital, and making acquisitions.

Taking less risk doesn’t necessarily mean women are risk-averse. They seem better able to take on appropriate levels of risk than men, who may be inclined to chase hot tips or engage in other behavior driven more by emotions than facts.

Better self-control

Women tend to deal with market volatility better than men.  One survey found they were less likely to sell an investment at a loss when the market tanks.

Women are diligent

Women are diligent about researching their investments.

One study found high net-worth women were as likely as their male counterparts to be “involved, active and engaged in the investing process.”.

Other factors

There’s evidence that women investors are better at sticking to a consistent investment strategy, which often includes long-term investments.

Biological differences may also be part of the reason for the outperformance of women.  According to Meredith Jones, who researched this topic at Rothstein Kass, differences in testosterone and cortisol levels may explain how women assess risk and do a better job at “matching expected outcomes with actual outcomes.”

Jones references other studies showing that women are “less overconfident” and have a “flatter probability weighting curve.”

An anomaly

It’s anomalous that women investors (retail and professional) outperform men but are underrepresented in the mutual fund and hedge fund industry. One study (referenced here) found that women are only 2% of mutual fund managers and less than 10% of hedge fund managers.

This lack of representation of women is costing investors better returns.

All investors could benefit from emulating the traits that have generated superior returns for female investors:  Better risk assessment, broad diversification, long-term investing, less trading, and more patience.

There’s compelling evidence that women investors tend to outperform their male counterparts.


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