The ETF Searching for Alpha Without the Male 

There’s a not-so-secret way one exchange-traded fund is handily outperforming the S&P 500 this year: Put the money on women.

The Hypatia Women CEO ETF (WCEO) was up 21% year to date as of market close Friday, compared with under 14% for the S&P 500. The fund’s methodology is to invest in big public companies led by women, and that has clearly paid off, at least in its relatively short history. The fund recently reached two milestones: It just cleared $10 million in assets; and it now has a three-year track record. “We’re now actually getting many independent advisors interested in this thematic, which as far as we know is the only financial product in the world that targets the performance of female CEOs,” said Patricia Lizarraga, managing partner of Hypatia Capital.

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The actively managed fund, which represents about $11 million, appears to be the only US ETF with a focus on women-led companies. Hypatia’s thesis is that such businesses have a greater likelihood of outperforming, as it’s no accident when women are picked to lead them. “For women in today’s corporate America, it’s harder for them to get to the top,” Lizarraga said. “It’s that additional challenge, their resilience and the fact that boards have a fiduciary duty to pick the best person to lead the organization … Those facts are what lead to our outperformance.”

While the fund is ahead of the S&P 500 this year, it slightly lags its benchmark, the S&P SmallCap 600 Index, which has returned 23% year to date. A lot of investors view it as a thematic fund more than anything, Lizarraga said. Its top holdings include several oil and gas companies, as well as International Seaways. It also has significant allocations to Franklin Resources, Voya Financial and other firms in asset management and insurance. “We’re [providing] diversification away from the Magnificent 7, and that has helped in the performance,” Lizarraga said. Still, the fund’s software-company exposure hurt it in the second quarter (women-led tech companies are more often on the software than hardware side, she noted). “But we’ve seen that turn around … The death of software was overstated.”

There are several other funds in the US with wider investment strategies supporting corporate gender diversity or women’s empowerment:

• The $337 million State Street SPDR MSCI USA Gender Diversity ETF (SHE), which invests in companies committed to diversity across their organizations, has returned 22% year to date.
• The $59 million Impact Shares Women’s Empowerment ETF (WOMN), which focuses on companies with policies supporting gender equality, has returned 10%.
• The $659 million Impax Global Women’s Leadership Fund (PXWIX), which is a mutual fund that allocates to companies that seek to advance gender diversity and equality, is up 15%.

She’s All That: Distribution has been a challenge for WCEO — it’s not even available through Ellevest, which caters to women. Having three years of returns to show could help change that, Lizarraga said. “We want to engage with more financial advisors and more RIAs that will do the due diligence to see how robust our processes are and how our investment thesis will outperform.”