How Gender Diversity Indexes Performed In 2022

IWD 2023: Which APAC stocks contribute the most?

Kate Lin 15 March, 2023 | 16:29
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Achieving full gender equality may take close to 300 years if the current rate of progress continues, based on a calculation by the United Nations. Women in top leadership positions are still very rare and tend to earn a smaller proportion of what their male counterparts earned. This highlights the importance of investing in companies that work towards reducing the gender gap.

Dan Lefkovitz, a strategist for Morningstar Indexes, explains that “cognitive diversity” can enhance decision-making, and since women often have higher levels of educational attainment, gender diversity broadens the talent pool. He says, while gender equity is partly a matter of social justice, research also shows that gender diversity is linked to better corporate results, which translates into better investment outcomes for investors.

From a broader perspective, equal opportunities can foster more resilient economies that can withstand and recover from crises more quickly.

What Forms a Gender Diversity Index

Morningstar Gender Diversity indexes emphasize companies across the globe committed to equal opportunity and access. The indexes incorporate 19 gender-related criteria while reflecting the broad equity market. Index analysis suggests that gender-lens investing can be about both values and value. Companies embroiled in legal cases involving gender-based violence and discrimination are excluded.

Female representation in corporate Japan at the board, executive, and general workforce levels is low, reflected by a low representation of Japanese gender-equity leaders in the index when compared to the parent index and its aggregate country weight in the Morningstar Developed Markets Gender Diversity Index “remains a significant underweight,” says Letkovitz.

The issue making Japan a major laggard is the lack of transparency in disclosure. Only 4% of companies in Japan publish information about their gender pay gaps. “This should change in the future, as the Japanese financial regulator is requiring companies with more than 300 people to publicly disclose their gender pay gap beginning in 2023,” says Lefkovitz, citing the Equileap special report Gender Equality in Asia-Pacific.

Across Asian developed markets, Singapore receives above-market weight in the gender diversity index, while Hong Kong receives roughly market-level weight.

Which Asian Companies Contributed to the Gender Diversity Indexes?

In 2022, gender diversity indexes performed well. Seven of the eight gender-focused indexes, segregated by regions, generated excess return. In U.S. dollar gross return terms, the Morningstar Developed Markets Gender Diversity Index declined 16% terms in 2022, outperforming the 17.8% decline for its parent, the Morningstar Developed Markets Large-Mid Cap Index.

“The developed markets gender diversity index was boosted by its below-market exposure to the technology sector, which tends not to score well on gender criteria, and above-market exposure to energy and defensive sectors like healthcare and consumer defensive,” Lefkovitz says. Detractors are the top index constituents, such as Inc (AMZN), Microsoft Corp (MSFT), and Apple Inc (AAPL).

On the flipside, as the index holds most of the same constituents as their parent indexes with weights tilted toward better-scoring companies, best-performing energy companies gave the index a major lift. U.S. refiner of petroleum products Exxon Mobil, pure-play driller Chevron, and crude oil producer ConocoPhillips (COP) boosted performance. Pharmaceutical companies Eli Lilly (LLY), AbbVie (ABBV), and Merck & Co. (MRK) are the contributors from the healthcare sector.

In the Asia Pacific region, Australia’s Woodside Petroleum (WDS), Japanese convenience store and supermarket operator Seven & i Holdings Corp. (3382), and pharmaceutical company Daiichi Sankyo are constituents from developed markets that contributed to the gender diversity index’s outperformance in 2022.

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About Author

Kate Lin

Kate Lin  is an Editor for Morningstar Asia, and is based in Hong Kong

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