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Integrity and Investing: Gender Equality

Women at the Top Make for Better Stock Returns

Written by Jason Williams
Posted July 27, 2016

Today, we're going to address the marginalization of women. I'll give you some statistics on just how disenfranchised this half of the population is. And I'll give you some companies that are leading the way to bring that to an end. I'll also show you how investing in these companies will bring you stellar returns.

Marginalized and Mistreated

I mentioned in my last article in the series that the court case involving Stanford rapist Brock Turner is part of the reason I wanted to address this issue. By giving a violent criminal a slap on the wrist, the courts have driven home the fact that, as a society, we don't value women in the same way as men. But it wasn't the first thing that got me thinking about how big a problem we have and how little people recognize it.

Last year, someone asked me to help research campaigns that call attention to violence against women and the inequality suffered by females worldwide. As I researched the campaigns, I was shocked to see how few there are and how little attention is paid to these injustices.

Did you know that UN statistics show one in three women has been the victim of some form of abuse in her lifetime?! One in five women will become the victim of rape or attempted rape. Up to 50% of sexual assaults are committed against girls under 16, and 30% of women report that their first sexual experience was coerced.

From an economic standpoint, the struggle is equally bad. According to the World Bank, women make up 40% of the world's labor force but control just 1% of the world's wealth. Female workers earn $0.62 for every $1 that men earn in Germany, $0.64 in India, and about $0.80 in Mexico and Egypt. Even in the U.S., women earn about $0.77 to each $1 paid to men in the same roles.

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But we can change that if we all call for an end to it. A wise man once said, "One step forward by 100 people is better than 100 steps forward by one person."

There are some amazing Fortune 1000 companies out there that have taken great steps in gender equality. And the ones that have taken the biggest steps are actually some of the best performers out there.

Before I get into the companies, let me show you exactly how much better they're doing than the rest of the market. Research from companies like Credit Suisse, non-profits like McKinsey, and even some of the most respected universities in the world drives home the fact that female leaders make investors rich.

More Diversity = Better Performance

For the past decade, major research firms and non-profits have been looking into the effects that female executives and female board members have on financial performance. Recently, the public sector has taken notice and jumped in as well. Their findings are all the same: having more women in top positions pushes already solid companies to even higher levels.

Researchers at the University of Maryland and Columbia University showed positive impacts on both return on investment (ROI) and return on assets (ROA) when women made up some of the board of directors at public companies. They also saw evidence of an increase in firm value when women were added to top positions.

In two studies, Catalyst was able to show that companies with more women in senior management positions financially outperform companies with fewer women at the top. They found that those companies with more women had an average return on equity (ROE) 35% better. Total return to investors was similarly higher (34%). The difference in ROE was even greater (46%) when compared to companies with no women board members.

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McKinsey found similarly impressive results in a 2010 study. Here researchers showed that operating margins at companies with females in top spots exceed those with none by a whopping 56%.

Researchers at the University of British Columbia Sauder School of Business found that mergers are cheaper when there are women helping make the decisions, too. In fact, for each female director on a board, the cost of an acquisition goes down by 15.4%!

Thomson Reuters analysis shows that companies with no women on their boards underperform relative to those with gender-diverse boards and have higher tracking errors, which indicates more volatility. Gender-diverse leadership leads to better share prices during times of market turmoil.

But what may be the most compelling piece of research is a study by Quantopian analysts that shows women-led companies outperform the S&P 500 by 226%! And that's actually a conservative amount, as the dividends from the women-led companies weren't reinvested, while those of the S&P were.

So, whether that all means women are better at running companies, better companies hire more women to top positions, or more diversity leads to better returns, we can't ignore those kinds of numbers. 

But that's not to say that every company that has a high percentage of women in top positions or female executives is going to wallop the market. And that's why I've dug through some of the most diverse companies to come up with a list of the absolute best places to invest. These companies will help you support gender equality and will also give your portfolio an added boost.

The Absolute Best Women-Led Companies

In order to help get you off on the right track, I've gone through some of the top companies giving leadership opportunities to women and narrowed the field to the five absolute best investments. And as an added bonus, I'm going to include a chart of the top 20.

But before I get started with those, let me tell you about a couple of other investments you can make in female-run companies that might interest more passive investors.

There's a great mutual fund called the Pax Ellevate Global Women's Index Fund (NASDAQ: PXWEX). It invests in female-led companies and was set up by Wall Street veteran Sallie Krawcheck. You can also look at the SPDR SSGA Gender Diversity Index ETF (NYSE: SHE). This also tracks companies with solid female representation in leadership positions. Or there's the Barclays Women in Leadership ETN (NYSE: WIL). So whether you prefer to passively invest through mutual funds, ETFs, or ETNs, there's an option for you.

Now, let's talk about those top five:

Number 5 Top Women-Led Company: Texas Instruments (NASDAQ: TXN)

That's right. Everybody's favorite calculator company is a leader in gender diversity, too. But TXN doesn't just make calculators. It's actually a semiconductor company that has a hand in everything from automotive safety to touchscreen controllers. A staggering 42% of the board members at TXN are women, and the company has done incredibly well thanks to this diverse group of decision makers. The company sports an ROE over 29% and an ROA of 16%. Plus it pays a nice dividend of 2.45%, so you can get paid while the diverse board grows the share price.

Number 4 Top Women-Led Company: Zoetis (NYSE: ZTS)

A major player in the health care industry, Zoetis develops and markets vaccines and medicine for livestock and pets. While only 9% of the board is made up of women, ZTS also has a female head of R&D who's helped lead the company to excellent performance over the years. The ROA of nearly 13% is pretty impressive. But the ROE of over 30% is what really shows how well this diverse company can do for your portfolio. ZTS also pays a small dividend — not too much, though, since most of its money is reinvested in researching and developing the next blockbuster product to sell.

Number 3 Top Women-Led Company: Medivation (NASDAQ: MDVN)

This biotech company is another great investment in gender equality. And its products help cancer patients recover and stay healthy. Sporting a board comprised of 43% women and with finances led by a female CFO, MDVN is a leader in both its industry and in the fight for gender equality. It's got an ROA of almost 25% and ROE over 36%. It's hard to find a better place to put some of your investment dollars than this diverse innovator.

Number 2 Top Women-Led Company: The TJX Companies (NYSE: TJX)

This off-price apparel and home fashion retailer prides itself on not only having a board comprised of 20% women, but also a female CEO who's led the company to great success. She's also added substantial gains to investors' portfolios since taking the reigns. TJX boasts an impressive ROA over 20% and an ROE above 50%! In addition to those great numbers, it pays out a solid 1.35% dividend to investors. Plus, the stock's gained over 200% in just the past five years!

Number 1 Top Women-Led Company: Clorox (NYSE: CLX)

Consumer goods maker Clorox checks in as the number one women-led company on our list. Its board is 27% female and the general counsel and executive VP is a woman as well. And this diverse company sports perhaps the best numbers out there. The ROA is a lofty 16% — not quite as high as some of the others on our list. But the ROE more than makes up for that. It clocks in at a whopping 240%! Shareholders are also rewarded with a 2.33% dividend yield for investing in gender equality. Over the past year, the company's stock price has gone up over 20% compared to an S&P 500 that's gained just under 5%. Four times the growth and an investment in equality. I'll take some of that.

Top 20 Women-Led Companies

Those are the best of the best when it comes to investing in companies leading the way in gender diversity at the top levels. But as an added bonus, here's my top 20 in case you're looking for more ways to bolster your portfolio and support women in business. You can check out the non-profit 2020 Women on Boards as well for an even bigger list.

Top 20 Women-Led Companies

Investing in companies with diverse boards and C-suites isn't the only way you can show your support for gender equality. There are organizations out there that need support as well. And just recognizing that there is a problem and making a change in the way we think and act as individuals will help to shape a better future for everyone.

To investing with integrity,

Jason Williams

Follow me on Twitter @AllBeingsEqual

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