Graham Macdonald, MBE
MBMG International Ltd.
Nominated for the Lorenzo Natali Prize
Are women better than men?
A recent report by consultants Rothstein Kass suggests that over the last
five years, up to 31st December of last year, hedge and alternative funds
run by female managers outperformed those run by men. In 2012 alone, women
achieved returns almost 6% higher than men, with a return of just under 9%.
Yet, the report states there are only around 100 female hedge or alternative
fund managers globally. Also, women tend to run smaller mandates than men
and are given less opportunity to take on more senior roles.
Nevertheless, there have been some notable women managing funds, such as:
Abby Joseph Cohen at Goldman Sachs, Fidelity’s Abby Johnson, Carol Galley -
formerly of Mercury Asset Management and regarded as ‘the most powerful
woman in The City of London’ in the 1990s - and Nicola Horlick, founder and
principal at Bramdean, which specializes in women clients. Additionally,
Meredith Whitney is largely credited with producing outstanding research on
sub-prime mortgage exposures which alerted her ex-colleague, John Paulson,
bringing him spectacular gains and worldwide fame in the Global Financial
Among the portfolio managers recommended by MBMG, Ruffer’s senior team is
almost 25% women, while MitonOptimal’s Head of International Portfolio
Management is Joanne Baynham, who manages or co-manages five of their main
mandates. Added to that, Edouard Carmignac has named his daughter Maxime to
one day lead his business.
Rothstein Kass’ report makes the point that the limited number of female
investment managers is a self-fulfilling supply issue - there are few
opportunities given to women to manage funds. Therefore, there are few
opportunities for them to develop track records and make their names,
resulting in the fact that there are very few leading women fund managers.
Given this situation, there is no incentive to give opportunities to women
to manage funds. And so on, ad infinitum.
Meredith Jones of Rothstein Kass believes that women managers outperform men
because they are more capable managers of risk. She also suggests that women
are often restricted, as mentioned above, to smaller mandates, which tend to
outperform their larger equivalents; thus women are at a statistical
advantage in fund performance.
I am not convinced by either of these theories. To me, it is perhaps just so
much more difficult, even in the 21st century, for women fund managers to
find opportunities that only the very best rise to the top, whereas men with
more mediocre capabilities are given client funds to manage. Maybe women are
not innately better at managing money but perhaps the investment world gives
opportunities to a far greater mediocrity of male investment managers that
are denied to all except the very best women.
It is not only women who outperform their male counterparts, however. In The
Observer’s 2012 stock-picking challenge, a ginger cat called Orlando also
outperformed a group of professional male equity managers and some students
in choosing the overall five best-performing companies from the FTSE
All-Share index. He picked his stocks by throwing his toy mouse at a grid of
numbers representing constituent FTSE companies and generated a 10.84%
return, more than three times better than the professionals.
It could well be that cats make better managers than male or female humans.
However, a more rational conclusion is that stock-picking is highly random,
generating little Alpha or outperformance. Investors should instead
concentrate on 90% of returns that come form asset allocation (i.e. whether
or not to invest in stocks at all), rather than fund selection - choosing
particular stocks to invest in.
Generating returns by asset allocation is a proven skill, whereas generating
them by stock-picking is, in most cases, a myth. Thus, as recent data shows,
an ever-increasing proportion of equity methods are made through passive
strategies rather than active ones. At MBMG, we find that replicating a
stock index through an Exchange Traded Fund (ETF) or Contract for Difference
(CFD) allows us to focus on asset allocation, which drives 90% of
differences between portfolios.
The key lesson from Orlando’s story is that not only is stock-picking
largely irrelevant, it is also now practically impossible. The vital
conclusion from the Rothstein Kass report is that investors need to seek out
the best portfolio managers, male or female, and ignore the mediocrity of
the herd. Mediocrity in investment management may be a manly make preserve
but excellence is limited to very few women - and very few men, too.
The above data and
research was compiled from sources believed to be reliable.
However, neither MBMG International Ltd nor its officers can
accept any liability for any errors or omissions in the above
article nor bear any responsibility for any losses achieved as a
result of any actions taken or not taken as a consequence of
reading the above article. For more information please contact
Graham Macdonald on [email protected]