Should men be investing like women?
It's something of a dangerous topic, prone to be prefaced by remarks such as 'we mustn't generalise, but...'. Nevertheless, every few years there's a piece of research published, suggesting that women are more effective investors than men.
Now, we mustn't generalise because of course anything that can be said about women will also apply to some men, and vice versa. But, if these research findings and their implications are true, maybe Money Observer's male readers ought to consider tak- ing a page from the opposite sex's investment handbook.
First, let's take a look at some of the research that has been conducted over the past 10 years.
In 2005, investment website Digital Look found from a sample of 100,000 portfolios over a 12-month period that the average woman's portfolio grew by 17%, while the average man's grew by only 11%. Over the same period the FTSE All-Share index rose 13%. This finding wasn't entirely in isolation. A similar survey conducted the previous year found that the portfolios of female investors grew 10%, compared with 6% growth for those of male investors and a 7% climb in the index.
Unfortunately, Digital Look no longer compiles this data, so the study has not been repeated since then. However, in 2011 a report from Barclays and Ledbury Research found that women are 'more likely to make money as investors in the financial markets', mostly because they don't take as many risks as men.
The report also found that women are more likely to buy and hold shares than men.
Some say the trend extends beyond individual private investors. Earlier this year, accountancy firm KPMG found that hedge funds owned or managed by women performed significantly better than the overall index of hedge funds – a sector hugely dominated by male managers.
Hedge fund edge
Specifically, for the six and a half years to June 2013 the index of women-run hedge funds returned an annualised 6% while the HFRX Global Hedge Fund Index dropped 1.1% and the S&P 500 gained 4.2%.
Meredith Jones, a director at KPMG subsidiary Rothstein Klass at the time of that research, points out that fund size might have some affect on the results, as smaller funds tend to outperform. However, women's out-performance in hedge funds is not confined to small funds, so she argues that that explanation is "partial at best".
Instead, Jones says, other studies suggest women have a different approach to risk, trade less, are less likely to attempt to time the markets, and have 'less ego' involved in their investments than men.
"The result is less performance slippage from frequent trades, a diminished tendency to sell at the bottom and a more consistent application of their strategies," she observes. "Over time, this can add up to a meaningful and persistent performance differential."
However, the KPMG hedge fund trends are not as easy to read across the whole market, let alone to apply to private investors.
Indeed, Morningstar analysis for Money Observer showed that in the UK all companies sector, funds managed by men returned 10.51 and 82.59% over one and five years to the end of August, while the comparatively small handful of female-managed funds in that sector returned 7.66 and 81.77% respectively.
Fund group Vanguard has also compared the behaviour of men and women; although it does not directly analyse how the sexes per- form as investors, it does see interesting trends.
When it comes to saving into an employer's pension scheme for example, women are more likely than men to enrol in their company's group pension, and likely to contribute a higher percentage of their salary than their male colleagues. This could be another manifestation of the long-term, goal-oriented investment attitude that seems to be prevalent among female investors.
It could be argued that this has little to do with the success or otherwise of individual private investments, but it does reaffirm some trends in behaviour that leads to better long- term results.
Anna Sofat is the director of financial planning firm Addidi Wealth, which specialises in financial advice for women clients. She points out that one of the probable key differences between men and women concerns the way they approach money and risk.
"For women part of it is around priorities. They think of money in terms of little pots and certain things they are less willing to take risks with, such as their children's futures and family security. They are far less willing to take risks. They might think, for example, 'my base need in retirement is £20,000, and if I have more then I could take some risk with that'.
"Men think, 'I want 10% growth on my pension pot'; women think, 'I want £20,000 income when I retire'."
These observations echo what Vanguard found in its own research. Karin Risi, principal of Vanguard advice services, says: 'We have found that women are generally more conservative and longer-term investors than men.' She stresses, however, that this is a generalisation, and that there are certainly women who are risk-takers.
"Also, women really tend to focus on their long-term investment goals, so they ask 'what is my best chance of reaching retirement in a way that allows me to live the lifestyle I want?', rather than 'how can I outperform this quarter?'."
Risi adds that women tend to be less sensitive to the cost of investing. "I'm not suggesting they don't think [costs are] important, but in respect of behaviour, they are much more focused on the relationship with their adviser, if they use one."
Risi runs the financial planning group at Vanguard, which tends to work more with men than with women. "We find that the men are far more interested in the answers to questions such as 'how did my funds perform this quarter or this year?' and 'how much money did I make?'. Women ask, 'what action do I need to take to meet my goal?'."
Generally then, women take fewer risks, trade less, and may even be more considered in their decision-making than male investors.
What can the guys get from this?
- Remember: frequent trading can lead to performance slippage. Ask yourself why you are investing in a certain security, and whether you could be jumping on a bandwagon.
- Sleep on your big decisions, or take at least a few deep breaths and count to 10 before committing.
- Keep your goals in mind. What is this money for? Investing is a long-term thing. Don't compromise your strategy just because you've lost a few small battles.
This feature was written for our sister publication Money Observer
All investment returns are measured against a benchmark to represent “the market” and an investment that performs better than the benchmark is said to have outperformed the market. An active managed fund will seek to outperform a relevant index through superior selection of investments (unlike a tracker fund which can never outperform the market). Outperform is also an investment analyst’s recommendation, meaning that a specific share is expected to perform better than its peers in the market.
A sophisticated absolute return fund that seeks to make money for its investors regardless of how global markets are performing. To that end, they invest in shares, bonds, currencies and commodities using a raft of investment techniques such as gearing, short selling, derivatives, futures, options and interest rate swaps. Most are based “offshore” and are not regulated by the financial authorities. Although ordinary investors can gain exposure to hedge funds through certain types of investment funds, direct investment is for the wealthy as most funds require potential investors to have liquid assets greater than £150,000m.
A type of derivative often lumped together with options, but slightly different. The original derivative was a future used by farmers to set the price of their produce in advance before they sowed the seeds so that after the harvest, crops would be sold at the pre-agreed price no matter what the movements of the market. So a future is a contract to buy or sell a fixed quantity of a particular commodity, currency or security (share, bond) for delivery at a fixed date in the future for a fixed price. At the end of a futures contract, the holder is obliged to pay or receive the difference between the price set in the contract and the market price on the expiry date, which can generate massive profits or vast losses.