2023 was a bad year for women

Stay informed with free updates

“The value of a woman can never be underestimated by someone who does not understand her value.” — Gift of Gugu Mon.

“Poorly.” — Morgan Stanley.

Since 2019, the Quantitative Strategy team at Morgan Stanley has been publishing a stock screen that ranks companies by gender. Known as the Holistic Equal and Representation Score, or HERS, the idea is to “help investors identify those companies that are leaders and laggards in gender diversity.”

It is uncontroversial among academics, if not FT commentators, to argue that corporate gender diversity is a good thing for reasons beyond basic human decency. Diverse teams make better decisions (Wooley et al, 2010). They are generally more innovative (Díaz-García et al, 2013) while taking fewer stupid risks (Chen et al, 2015). The more women a Fortune 500 company has on its board of directors, the higher the average return on equity, sales, and invested capital (Catalyst, 2011).

Do these positives translate into better share price development? No. At least not lately. Shares in high-diversity developed market companies underperformed those with low diversity by 3.1 percent globally last year, trailing everywhere except Europe, Morgan Stanley found:

© Morgan Stanley

In the long run, the strategy is valid. Just. Companies with high gender diversity outperformed less gender diverse firms by 1 percent annually from the start of 2011 to the end of 2023, the bank says. Only in Japan, awake means broken:

But 2023 was the second worst year for the screen since 2011:

The underperformance in 2020 is fairly easy to explain. The initial market shocks of the pandemic were severe in industries known for more diverse workforces, including healthcare. So what went wrong in 2023?

Morgan Stanley suggests a combination of “increasing negative sentiment” around diversity, equity and inclusion strategies, along with a clustering of gains around the themes of generative artificial intelligence and diet pills.

Novo Nordisk consistently makes the cut because it is gender inclusive, although only Apple is a standout among the Mag7. A sector view continues to show US tech and Asian HERS-eligible healthcare significantly underperforming less diverse peers:

The job cuts may also have lowered some companies’ diversity scores, the bank’s team speculates. It’s a theory that would dovetail with evidence of a gender gap in firing rates and the tendency of bosses to fire employees who don’t look like them.

For investors looking to promote gender equality in a convenient but holistically insignificant way, several ETFs offer exposure to the topic. A cursory inspection suggests that the class has underperformed the S&P 500 since 2018, with the most famous example, State Street’s “Fearless Girl” SPDR Gender Diversity ETF, also underperforming the MSCI World.

You see a screenshot of the interactive graphic. This is most likely because you are offline or JavaScript is disabled in your browser.

ESG ETFs may have fallen out of fashion since the mini-boom of 2019. The purpose of pooling stocks based on gender metrics (then you abstain from voting on the gender pay gap) is still unclear.

Still. Morgan Stanley’s most important finding is that the corporate world is gradually becoming fairer:

© Morgan Stanley

And will these trends be positive for stock prices? Who cares.

Further reading
— State Street “Fearless Girl” Statue Point (FTAV)
— A real ESG success story? (FTAV)
— Has the push for women’s equality gone too far? (FT; you might want to check if your comment about social engineering, natural order, identity politics and vigilantism is already covered before you repeat it here).