Sexism's Effect On ETF Returns

Sexism's Effect On ETF Returns

Sometimes you sacrifice returns for principles—and that's OK. 

Reviewed by: Lara Crigger
Edited by: Lara Crigger

Let me be upfront: I like the SPDR SSGA Gender Diversity Index ETF (SHE). Investing in female-led companies and boardrooms is compelling, even powerful; especially in this particular moment we inhabit, where every day breaks yet another news story about sexual harassment and gender-based discrimination.

So, yes, I want SHE to succeed. As much as anybody can root for an inanimate construct, by golly, SHE, I'm rooting for you.

Which is why it pains me to say this: SHE has underperformed the broader market, as measured by the SPDR S&P 500 Index ETF Trust (SPY), by 5.2% since it launched in March 2016:



Granted, the discrepancy isn't huge. But neither is it negligible, especially since the grand conceit of ESG (environmental, social, governance) investing is that you don't have to sacrifice returns to follow your conscience.

But before you look at this chart and conclude that women-led firms just don't perform as well as ones led by men, it's worth peeking under the hood of these two funds to see exactly why their returns differ.

Different Portfolio Construction

The reason for the performance divergence is simple … yet not: Despite both tracking the largest public companies in the country, SHE and SPY hold vastly different portfolios.

SPY's index committee selects 500-ish stocks from the large- and midcap space. SHE, meanwhile, selects from the top 1,000 largest companies, evaluating them on the ratio of women on their boards of directors and in executive positions (defined as vice president/managing director or higher). The top 10% of companies in each sector are included in the portfolio, then market-cap weighted—with the caveat that each company that makes it in must have at least one woman on its board or as CEO.

The motivation behind such a selection/weighting process is to ensure that SHE mimics the moves of the broader market, offering neutral large-cap exposure to investors who also want to support companies led by women. But doing things this way has two consequences.

First, SHE pulls from a deeper pool of securities than SPY: The top 1,000 versus all the top 500, respectively. So, not only are there stocks in SPY that, by design, won't show up in SHE, there are a fair number of stocks in SHE that won't show up in SPY.

Second, the stocks that do appear in both SHE and SPY are given very different weightings. Consider the difference in the top 10 holdings between the two ETFs:


Top 10 Holdings, SPY vs. SHE
Apple3.94% Pfizer5.80%
Microsoft2.70% Coca-Cola5.59%
Alphabet (A+C Shares)2.61% PepsiCo4.67%
Facebook1.92% Amgen3.89%
Amazon1.81% IBM3.86%
Johnson & Johnson1.68% MasterCard3.79%
Berkshire Hathaway1.58% McDonalds3.73%
Exxon Mobil1.57% Lockheed Martin2.50%
JP Morgan Chase1.49% U.S. Bancorp2.43%
Procter & Gamble1.12% Texas Instruments2.32%
Total:20.42% Total:38.58%

Source:; data as of 11/6/2017


It's easy to see that these two ETFs don't look anything alike.


SHE: Less Apple, More Big Mac

Notably, the high-flying tech giants—Amazon, Apple, Facebook, Google and Microsoft—which have propelled the S&P 500 to such great heights lately, don't show up in SHE's top 10. In fact, they don't show up in SHE at all.

On the other hand, Pfizer, SHE's top holding, at 5.80%, only carries a 0.96% weighting in SPY. Coca-Cola and PepsiCo—SHE's second- and third-largest holdings, at 5.59% and 4.67%—carry only 0.84% and 0.77% weights in SPY, respectively. Going down the securities list, name by name, you'll see that SPY has many of the same holdings as SHE, but in vastly smaller amounts.

The absence of Amazon, Apple, Facebook, Google and Microsoft in SHE is no small thing, considering these five companies alone accounted for more than half of October's stock market gains, according to CNBC. Together, the tech sector accounted for fully three-quarters of the S&P 500's gains last month; without it, the S&P 500 would only be up 0.5% (see: "4 Horsemen of Stock ETFs").

SHE does have a considerable weighting (17.99%) in tech stocks, which is also its largest sector. But it's still not as high as SPY's allocation of 23.02%. And considering SHE lacks those five crucial stocks, perhaps it's remarkable the ETF is performing as well as it is.

Weight & See

Looking at all this, my first inclination is to groan at how lousy tech companies are at promoting women. The big five tech giants pay a lot of lip service to gender equality—especially after Sheryl Sandberg told us all we had to do was "lean in" to rise to the top—but when it comes to actually putting women in charge? They still drag their feet.

Yet there's more to the story here.

Consider that IBM, SHE's highest-weighted tech stock, has a female CEO and six female senior executives on its 21-person leadership team. That's pretty good, I guess, but IBM's women-to-men ratio (29%) is almost on par with Apple, which has five women in its 19-person leadership team (26%). (That said, Ginni Rometty being CEO bumps up IBM's weighting, according to SHE's methodology.)

Or consider that PayPal, SHE's third-highest weighting, actually has slightly worse women-to-men ratios in all categories than Alphabet, which doesn't show up in SHE's index at all. 


Female Leadership, Top 3 Tech Stocks: SPY vs. SHE
SPY# of Female
Senior VPs or
# of Female
# of Female
Apple5 of 19 (26%)1 of 11 (9%)1 of 8 (13%)
Microsoft3 of 16 (19%)3 of 16 (19%)3 of 13 (23%)
Alphabet (A+C Shares)2 of 7 (29%)1 of 6 (17%)3 of 12 (25%)
IBM6 of 21 (29%)6 of 21 (29%)3 of 15 (20%)
Texas Instruments4 of 13 (31%)4 of 13 (31%)4 of 13 (31%)
PayPal3 of 15 (20%)1 of 9 (11%)3 of 11 (27%)

Source: Corporate Statements. Data as of 11/10/2017. Note: Microsoft has no senior VP positions. IBM and Texas Instruments do not break out "executive" and "senior VPs" in their leadership teams.


So the reason Apple, Amazon, Facebook, Google and Microsoft don't appear in SHE is as much a result of the ETF's weighting methodology as an indication that these companies stink at promoting women (which they do; don't forget that).

As I said before, to build its index, SHE first takes the 10% of companies from each sector with the best gender ratios; only once that's done are the securities market-cap-weighted. Meaning, companies in one sector with better ratios may be eliminated to ensure that another sector gets its full 10%.

It's worth noting, however, that even with its complicated methodology, SHE's top holdings offer only incremental improvements over SPY, in terms of gender diversity. Compare the gender breakdown of the top three companies in SHE: Pfizer, Coca-Cola and Pepsi:


Female Leadership in Top 3 Holdings, SPY vs. SHE
SPY# of Female
Senior VPs or
# of Female
# of Female
Apple5 of 19 (26%)1 of 11 (9%)1 of 8 (13%)
Microsoft3 of 16 (19%)3 of 16 (19%)3 of 13 (23%)
Alphabet (A+C Shares)2 of 7 (29%)1 of 6 (17%)3 of 12 (25%)
Pfizer4 of 13 (31%)4 of 13 (31%)3 of 12 (25%)
Coca-Cola12 of 33 (36%)3 of 12 (25%)4 of 14 (29%)
PepsiCo12 of 41 (29%)3 of 13 (23%)3 of 13 (23%)

Source: Corporate Statements. Data as of 11/10/2017. Note: Microsoft has no senior VP positions. Pfizer has "executive" vice presidents.


Executive teams and boardrooms that are 20-30% women are nothing to celebrate. They're only slightly less bad.


We could always follow Europe's lead and mandate that a certain percentage of seats in boardrooms be filled by women (30-40%, depending on the country). That regulation will likely influence the holdings of Europe's first gender diversity fund, the Lyxor Global Gender Equality (DR) UCITS ETF (ELLE: FP), which launched on Oct. 12.

But me, I'd rather companies come to the conclusion on their own that female-fronted leadership teams make good business sense. The evidence is out there: A 2016 MSCI study found that firms with at least three female directors on their boards, or a higher proportion of female employees than the national average, saw a 36.4% higher return on equity than firms without.

Strength In The Evergreens

Interestingly, one result of SHE's weighting methodology is that it allocates 7% more of its portfolio than SPY to consumer non-cyclical stocks, 2% more to health care companies and 1.25% more to utilities. (Below is a full breakdown of the top 10 sectors in each.) 


Sector Breakdown, SPY vs. SHE
SectorSPY SHE Δ between
Technology23.02% 17.99% 5.03%
Financials17.46% 14.40% 3.06%
Healthcare14.02% 16.30% -2.28%
Consumer Cyclicals12.26% 12.65% -0.39%
Industrials10.42% 10.52% -0.10%
Consumer Non-Cyclicals8.42% 15.46% -7.04%
Energy5.92% 5.74% 0.18%
Utilities3.10% 4.35% -1.25%
Basic Materials2.27% 1.41% 0.86%
Telecom2.16% 0.96% 1.20%

Source:; data as of 11/6/2017


One good thing about all three of these sectors is that they're independent of economic climate. People will always need food and drink; they'll always need prescription drugs and doctors; and they'll always need heat and electricity. In fact, as the U.S. population continues to increase and age, demand for non-cyclicals, health care and utilities should only increase as well.

So what gains SHE may miss out on from today's stock rally might actually serve to its benefit tomorrow, should tech stocks take a nosedive. SPY is powered by tech stocks, and five stocks in particular; so it would be very exposed to negative events such as, say, an anti-trust lawsuit against Google or Amazon, or regulatory fines levied on Facebook or Apple—or even just lower-than-expected earnings.

SHE's resilience might be of particular interest to CalSTRS, the pension fund that owns $283 million of SHE, or 80% of the ETF's total assets (source: WhaleWisdom). Pensions need steady, dependable returns in all markets, so a large-cap fund with built-in protection against a potential tech sector crash might be worth the slight underperformance.

Who knows—maybe it's time we all started broadening our horizons a little.

As of the time of publication, the author held no positions in the securities mentioned. Contact Lara Crigger at [email protected].

Lara Crigger is a former staff writer for and ETF Report.