The term “gender lens investing,” first used back in 2009, isn’t receiving as many blank stares as it did in its early days. But even investors who’ve heard of it may not realize, based on its name, that it incorporates multiple lenses.

A gender lens often looks at investments by taking into account target companies’ policies toward females. How many women are in a company’s C suite? How many are on its corporate board? Has the company closed the gender pay gap? Offered mentoring or career advancement to women—with family leave and other gender-based initiatives?

In other cases, a gender lens means making sure companies protect the women in their supply chains from human rights abuses. Or it refers to microfinance and community development investment vehicles that directly benefit women and girls.

No matter the specific focus, the movement has been attracting more assets, products and shareholder attention, and it’s likely to have staying power. “There is a business case as well as a social case for looking at gender as a metric,” says financial advisor and portfolio manager Eve Ellis, co-founder of the Matterhorn Group at Morgan Stanley in New York City and co-manager of one of the industry’s first gender lens investing strategies.

Such approaches are expected to find an audience among the fastest-growing pool of potential new clients—women and millennials. Studies show women are outliving men and controlling more wealth, says Ellis. Women are aligning values with investing more than they used to and millennials are doing it more so than past generations.

Money is already pouring into gender-focused vehicles. According to a joint analysis from Veris Wealth Partners and the nonprofit investor network Women Effect, gender lens assets under management in public equity and public debt have grown fivefold since 2014, reaching $561 million as of June 30, 2016.

Half the assets were in State Street Global Advisors’ Gender Diversity Index ETF, which was launched in March 2016 and seeded with an initial $250 million from the California State Teachers’ Retirement System (CalSTRS). There were 15 public market “gender lens investing” equity and debt products in June, up from nine in 2014. The Pax Ellevate Global Women’s Index Fund and Community Capital Management hold the next largest pieces of the pie, according to the analysis.

The State Street and Pax Ellevate funds invest in companies with gender-diverse boards and executive management. Community Capital Management invests in bonds that finance community development initiatives, many of which help women and girls improve their lives.

Gender-lens tools are also surfacing. The Bloomberg Financial Services Gender-Equality Index (BFGEI), launched in May, provides data on companies’ gender statistics, employee policies, gender-conscious product offerings and engagement. In September, Morgan Stanley rolled out a tool kit to help advisors use gender diversity criteria in their investment portfolios.

January will mark the fourth anniversary of the Matterhorn Group’s Parity Portfolio, a gender lens strategy for managed accounts that invests in U.S.-based companies with at least three women on their boards. “I am a feminist,” says Ellis. “This is in my DNA.” But it was the compelling financial data that prompted her and Matterhorn co-founder Nikolay Djibankov to launch the strategy.

What really spoke to Ellis was a 2011 report on Fortune 500 companies from the nonprofit group Catalyst, an organization that promotes inclusiveness. The study found that those companies with three or more women on their boards for at least four out of five years outperformed those with none. Such companies had a 46% higher return on equity, a 60% higher return on invested capital and an 84% higher return on sales.

Credit Suisse, McKinsey & Company, Ernst & Young, Harvard University and others have also found strong correlations between women on boards and corporate financial strength. At this point, “I feel as though you can count on one hand the number of companies that haven’t done the research,” she says.

The Matterhorn Group selects 25 to 30 companies for its Parity Portfolio by conducting fundamental and qualitative analysis—examining the consistency of profitability and valuations, management strength, adaptability and other factors. The strategy’s universe of investable companies has grown from 250 to more than 350 as boards have added female directors.

“We want that number to be 6,000 companies or 10,000 companies, so we have work to do,” says Ellis. “Any chance I get, I talk to CEOs to say this is what we’re doing and this is what’s important.”

Ellis is also a member of two organizations that promote diversity on corporate boards: the Thirty Percent Coalition and 2020 Women on Boards. And she’s on the steering committee of the 30% Club, which aims to improve the gender balance within companies.

Beyond The Boards
To enable clients to invest more broadly in gender and diversity, the Matterhorn Group recently rolled out a discretionary strategy called the Diversity & Inclusion Strategy. It’s based on the Thomson Reuters Diversity & Inclusion Index, which launched in September and ranks 100 companies across 24 metrics including their percentage of women employees and managers, the employees’ satisfaction, their flexible working hours and the companies’ day care services.

New York City-based Cornerstone Capital Group, a financial services firm majority-owned by CEO Erika Karp and certified by the Women’s Business Enterprise National Council, also looks for investments that “move beyond counting the number of women on boards and instead focus on all aspects of a company’s commitment to diversity,” says Jennifer Leonard, Cornerstone’s director of manager due diligence.

Cornerstone looks at equal-pay policies and opportunities for recruiting and promotion at all levels of an organization. It’s also interested in financial inclusion funds and other investments that empower women financially, funds that focus on improving supply chains that employ women, and funds that support businesses owned or managed by women, Leonard says.

Cornerstone seeks funds that take an active role in proxy voting and shareholder advocacy. It also checks to see whether fund managers employ female portfolio managers and analysts, though that's not an exclusionary factor. (A 2015 study from Morningstar found that less than 10% of all U.S. fund managers are women.) Leonard declined to name the funds the firm is interested in because Cornerstone’s platform is proprietary. The Ms. Foundation is one of Cornerstone's wealth management clients.

Gender is also a big focus for Arjuna Capital, an independent registered investment advisor focused on sustainable and impact investing. It looks at gender lens investing in the public and private markets and adds gender as an overlay to its fundamental and technical analysis, says Boston-based Natasha Lamb, a managing partner at Arjuna and the firm’s director of equity research and shareholder engagement.

“Gender equity is an issue that cuts across everything,” says Lamb. “The research we’d seen from McKinsey and others showed that gender diverse teams led to much better outcomes in terms of return on equity, profit margins and stock price performance.” More diverse teams also lead to “radical innovation,” she says, “because you have a multitude of perspectives.”

Arjuna is adding gender equity as a theme to the Highwater Global Fund, a public equity fund it manages in partnership with Marion, Mass.-based investment advisory firm Baldwin Brothers Inc. Investing in companies that support gender equity has “been a policy for a long time, but we really think the issue has elevated to the point that it’s an investable theme,” says Lamb, director of research for the fund.

She points to companies in the fund that have strong female representation on their boards and in executive leadership roles. One is child-care provider Bright Horizons Family Solutions, which provides early education, employer-sponsored child care and backup child care. Others include public utility company American Water; industrial company Ingersoll-Rand PLC; and specialty chemicals company International Flavors & Fragrances.

Arjuna is considering adding cosmetics company L’Oréal and clothes retailer The Gap to its investable universe, says Lamb.

These companies have diversity policies; a high percentage of female board directors and executives; and policies for recruitment, training and work-life balance. The firm also looks at private market investments with a focus on helping women, such as MCE Social Capital’s Private Global Economic Opportunity Notes and Calvert’s Community Investment Notes.

The Calvert Foundation has been involved in gender lens investing since its founding 20 years ago, says Najada Kumbuli, the foundation’s officer of strategic initiatives. It started lending to community development financial institutions, microfinance institutions and affordable housing developers whose target beneficiaries were mostly women and underserved clients.

In 2012, the foundation launched its Women Investing in Women Initiative (Win-Win) to enable investors to more specifically channel their capital to support and empower women and girls worldwide, says Kumbuli. Over the past four years, nearly 2,000 investors have invested in Win-Win. The average return is 2% for a five-year note, she says.

Community Capital Management (CCM), a Weston, Fla.-based institutional fixed-income manager and RIA, has seen growing interest for investments focused on women. “In fact, gender lens became one of our 14 targeted impact themes in the last year because of the increased attention from investors looking to support initiatives benefiting women and girls,” says Jamie Horwitz, chief marketing officer for CCM.
Only institutional investors can buy into the firm’s focused themes such as gender lens investing (for a minimum investment of $500,000). But the firm’s retail investors can get exposure to all of CCM’s impact initiatives, including gender investments, through a retail fund (CRATX).

Engagement Efforts
Shareholders are becoming more involved in efforts to get gender issues on the minds of companies, specifically to include more women on their boards. A big push for that effort is coming from the Thirty Percent Coalition, the Women’s Inclusion Project and other initiatives, says Michael Passoff, CEO of Proxy Impact, a San Francisco-based proxy voting service for mission-based investors. Several dozen companies are being engaged on the issue of increasing board gender diversity through shareholder letters, dialogues and resolutions, he says. “Proxy access resolutions are also raising the issue with several dozen more,” he says.

The issue of gender pay is also taking off. Arjuna Capital filed shareholder proposals with nine leading technology companies for the 2016 proxy season asking them to prepare reports about their policies and goals for closing their gender pay gaps. Seven have since committed to equal pay. Lamb plans to extend engagement in gender pay to financial companies and some retailers in 2017.

Mainstream investors are also starting to pay more attention to the implications of gender diversity and better governance. “It’s significant that four of the biggest pension funds in America are taking a very active position on these issues,” says Passoff.

Overall, the future appears bright for investing through a gender lens. “At some point, there will be explosive growth of AUM,” says Ellis of Morgan Stanley. “We can’t all forecast when, but investors are certainly starting to gravitate toward it.”