Feminine investment strategies perform better

Professional investors manage a large portion of the world’s wealth. Their investment decisions decide not just how much their clients’ funds grow year on year, but also which sectors of the economy receive more capital. So, it is important to understand the reasons governing their choices to check that personal bias is not distorting the way they build investment portfolios.

Working with my colleagues Professor Hans Peter Grüner at Mannheim University and Professor Christoph Siemroth at the University of Essex, I co-authored a study that finds professional fund managers do more business in sectors that produce goods they are familiar with as consumers.

This contributes to different patterns of investment behaviour we find in male and female fund managers. Women tend to buy more clothes and personal care items, while men purchase more fuel and are more active in financial markets. This translates into a greater focus on areas like the healthcare sector among female professional investors, whereas their male counterparts are more likely to invest in the finance and energy sectors.

Our findings are based on a comprehensive analysis of consumer spending preferences among the highest income bracket in the US Consumer Expenditure Survey, as fund managers earn a median annual salary of $400,000. We find clear gender differences in purchasing choices which correlate with fund managers’ investment decisions, as observed by examining data on portfolio holdings in the US from 2004–2019.

Crucially, we find that masculine investment portfolios typically perform worse. By a more “masculine” portfolio, we mean one that aligns more closely with the average investment choices of male fund managers, and vice versa for more “feminine” portfolios. To be clear, this is a scale: there could be male investors with more feminine portfolios and female investors with more masculine portfolios. However, more masculine portfolios, on average, yield lower returns.

The average masculine portfolio suffers a performance reduction of between 0.1–0.3 percentage points compared to the average feminine portfolio. So, if the average feminine portfolio earns an annual return of 10 per cent, the average masculine portfolio would earn an annual return of 9.7 per cent.

This drop in performance is significant. For example, a 0.3 percentage point performance reduction at an annual return of 10 per cent means someone who invests $100,000 in 2025 would have around $7,000 less in 2035.

Given that fund management remains a heavily male-dominated industry, the underperformance of masculine portfolios bears implications for the wider economy. Indeed, while only nine per cent of US fund managers are female, only three per cent of total net assets are controlled by women, reflecting a stark gender disparity in the profession. This type of asymmetry could lead to an inefficient allocation of capital.

So, why is this the case?

According to prior theories, consumption-based investment choices can bring economic benefits if they are grounded in the investor’s familiarity with particular sectors they often interact with as consumers. This level of familiarity could offer additional information and insights that help investors to direct capital where it is needed to create productive capacity in line with demand.

However, this only works properly when the people in charge of investing capital are similar to consumers. In the case of a large gender disparity, where half the population is represented by less than 10 per cent of investors, the mismatch can lead to funds being invested poorly.

A back-of-the envelope calculation suggests that achieving a 50:50 balance among professional investors that more accurately reflects the overall population would lead to a large-scale redirection of funds towards different sectors of the economy that align with women’s consumer preferences.

This would include more money flowing into the healthcare, materials, and information technology (IT) sectors, potentially driving innovation in these fields, while increasing financial constraints on the energy and finance sectors.

Increasing diversity among fund managers could also reduce risks by spreading investments across a wider variety of industries.

At the level of individual portfolios, corrective measures could be introduced to account for the underperformance of more masculine portfolios. A greater presence of female fund managers could be beneficial for annual returns, but it is also important to remember that male investors can manage more typically feminine portfolios. Improving professional investors’ awareness of how their purchasing habits may bias their investment choices could be a valuable place to start.

Read the paper A Man's World? Consumption-based Investment in the Mutual Fund Industry.