The unfortunate reality is that the investment world is generally perceived as a male dominated one, but things are definitely changing.
Global research shows that there is a large uptake in female investors and in a recent Blackrock survey, it indicated that there is almost no difference between male and female investor numbers.
Acocording to Jenna Hartley, Investor Consultant at 10X Investments, the difference is the female approach to investing which is a difference that might prove to be more effective over the long-term.
Asking the right questions
In her experience, Hartley says that the first thing that you notice about female investors is that they are more willingly to ask questions about the products and how they work. “They question the product, the service provider and any advice. Similarly, by asking the right questions you ensure that you fully understand what you are paying for, and what you are actually getting for your money,” she says.
Female investors will generally take the time to extensively research the investment choices on offer.
Hartley points out that they search out trusted advice from family or friends, compare products, and will even delay in making a decision if necessary. “The time it takes to do the research can leave the impression that they are undecided, or lacking in confidence. Rather, by conducting a greater level of research, they make a more informed decision.”
Running the household
In more and more households, you will find women in charge of the general finances. From grocery shopping to budgeting, school clothes to monthly payments, women make multiple financial decisions on a daily basis. However, an Old Mutual 2012 survey showed that when it came to making investment decisions, women generally deferred to their spouses.
Hartley says that this trend is rapidly changing, and is seemingly driven by age. “Millennial women already show a greater level of confidence in their own personal understanding of the investment world, increasing their participation in the investment game.”
If there is one criticism levelled at female investors, it is their prevalence for choosing the less risky option. “Often interpreted as a lack of confidence in their own ability, this couldn’t be further from the truth,” adds Hartley.
Statistically, women live longer than men and therefore, their savings, which are a result of investing, must last longer than their male counterparts. This leads to a greater long-term outlook: weighing the risks of pushing their luck now, versus the long-term consequences of ‘getting it wrong’.
“While chasing bigger, riskier returns might suit the psyche of men, this doesn’t gel with women. Their investment choices tend to be more considered, including concerns into their decision making – such as caring for dependents later in life. This can lead them to err on the side of caution,” she says.
The question is: do these characteristic make women better investors?
On the face of it, you would probably think not – different, but not necessarily better. However, taking these characteristics and comparing them to investment styles, you might think differently.
Hartley explains that you generally get two kinds of investment style: active and passive (index tracking) management.
Active management style is all action. You chop and change, making moves in the market with the aim of scoring a win over your fellow competitors. Constantly chasing Alpha (The excess returns of a fund relative to the return of a benchmark index is the fund's Alpha), active managers must look to one-up their fellow investor, because in order for one manager to earn more another must earn less.
Passive (also known as index tracking) investing is a calm, logical and patient approach. You secure the average market return at a low cost, allowing time and the power of compound interest to grow your investment. Rather than trying to beat the market and your competitors, index tracking allows for investors to consistently grow their money without the risk of human interference.
When considering the two investment styles, Hartley has found that women would generally fall into the index tracking category. But, how does this make them better?
According to the latest SPIVA results, around 75% of active managers underperform the average market return. That means over the last 5 years, up until December 2015, only 25% of active managers outperformed the index and ‘won’.
“That 25% gets even less when you look back over time, as fewer and fewer actually ever repeat the feat of beating the benchmark,” adds Hartley.
She says that, while the general perception is that men dominate the investing world, active management really dominates the South African investing landscape. “Nedbank, in 2013, said that 97% of funds in South Africa were actively managed. That leaves a tiny 3% indexing. Bearing in mind that only 25% of active managers beat the average market return, the 97% trying their luck are already in trouble from the start.”
“Women should be better investors than men. Their logical, calm and measured approach fits perfectly with index tracking funds. The only thing holding them back is participation – something that is changing rapidly. While there isn’t likely to be a Hollywood movie about index tracking funds, there most certainly will be a lot of wealthy investors who chose the “passive” route, and outperform those who don’t,” concludes Hartley.