Given the choice between two funds run by two money managers, 40-year-old Jennifer and 40-year-old Michael, both with an MBA degree and four years of experience in fund managing, who would most investors entrust their money to? Michael, more likely. Why? Simply because he's a man.
Investors might not be right to prefer funds run by men, a recent study featured in the Journal of Financial Research proves. Women are every bit as good as men at running money, Melissa Frye, assistant professor of finance at the University of Central Florida in Orlando, discovered through research.
After comparing fixed-income funds run by male and female managers, Frye found that women money managers are every bit as competent as male money managers.
Despite this, only a very small proportion of funds are run by women, and female fund managers usually find it tremendously harder, especially in their first year of managing the fund, to attract assets than male managers. Using a mathematical formula to simulate what Frye defined as normalized asset flows, she found that portfolios run by new male managers had an asset flow level of 1.391 in their first year, 86% greater than the 0.187 for women-run funds.
"The results didn't surprise me," said Diane Keefe, founder and manager of the $43.7 million Pax World High Yield Fund. "Women always need to work harder than men to achieve the same position, and so few women could succeed in this industry that they actually [have to] outperform men."
Male and female fund managers do not differ significantly in terms of investment strategies, performance, attitude toward risk and other fund characteristics, the study found. This was a marked contrast to previous studies that indicated women use different investment strategies or are more risk-averse than men, feeding the stereotype that women are less able financial decision-makers.
Using five years of Morningstar data through August 2000, Frye found that the average risk for all female-managed funds and all male-managed funds was almost identical. Expense ratios, which may provide insight into risk preferences as high-cost bonds tend to be riskier, showed no differences between the male and female managers. The study found that female managers seem to be willing to take lower risk only in the ultra-short bond and high-yield bond categories.
"Women who can break through the man-dominated world and become portfolio managers are not at all more risk averse than men," Keefe said.
The study finds male and female managers showed significant difference only in fund turnover ratios, with women exhibiting a lower mean.
When comparing fund returns, the study ranked male- and female-managed funds against all funds in the same investment category by total return, and obtained percentile rankings. Performance was not significantly different between the two sexes, with the exception of emerging-market bond funds, where the female managers appeared to underperform their male counterparts on a risk-adjusted basis.
"Female and male managers are equally competitive, due to the nature of the industry they are in," said Carol Miller, newly appointed growth team leader at Banc One Investment Management Group who oversees $4 billion in assets.
Women fund managers, while equally as well educated as men, have a long way to go, as they manage only 5.6% of taxable bond funds, Frye found. Even in the long-term bond category where women are the most prevalent, they account for only 16.7%, and there are no women managing international bond funds or multi-sector bond funds.
At the same time, women manage smaller funds. The female-managed funds in the study have on average $172.42 million in assets, while the average net asset for the 1,294 taxable bonds is almost double the size, with a mean of $334.35 million.
Although male managers are more likely to have a graduate degree, the study found, they are not significantly more likely to have an MBA degree. Meanwhile, 45% of the female managers in the study have a Chartered Financial Analyst certificate, compared with 37% of the male managers.
"Women usually have to get credentials such as CFA or CPA to become a portfolio manager," Keefe said, "while for men, the jobs are just given to them by their seniors."
But some female managers say they are given equal rights, especially when their performance proves they are equally as good.
Jill Cuniff, managing director and chief investment officer at Gartmore Morley Financial Services, said she doesn't see any gender-related discrimination around her, and it's "absolutely not the case" that fund firms make any less of an effort marketing female-run funds.
But most women managers say they are still frustrated by the male-dominated mutual fund world. To them, Miller's advises do not stay in a firm that does not focus on the bottom line. "Those simply are not good firms. There are lots of good organizations out there that care more about offering investors good products than the gender of their managers."
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