Many well-run companies with gender-diverse leadership teams are putting words into action regarding their commitments to sustainable investing—and in the process generating organic growth and meaningful free cash flow for shareholders, says Fidelity’s Nicole Connolly.
“I’ve seen some great execution among companies with female CEOs and CFOs that I think have potential for share-price upside, especially if financials track a little ahead of forecasts as the economy continues to rebuild,” says Connolly, portfolio manager of Fidelity® Women’s Leadership Fund (FWOMX), a core diversified domestic equity strategy dedicated to advancing women's leadership and gender diversity.
Connolly says the company’s research shows that firms with gender-diverse leadership and policies that promote, retain, and attract women outperformed a benchmark composed of the top 1,000 companies in the U.S. by about 1.28 percentage points a year, on average, during a 13-year study period beginning in June 2008.
In managing the fund since its launch in May 2019, Connolly also incorporates environmental, social, and governance (ESG) research into the investment process, using Fidelity’s proprietary ESG ratings, corporate sustainability reports, alternate sources of data, and conversations with management teams.
As of midyear, several retailing stocks met Connolly’s criteria for investment, including Gap (GPS), headed by CEO Sonia Syngal. The company’s primarily female-led management team is focused on a turnaround that involves closing Gap and Banana Republic stores and opening more higher-performing Athleta and Old Navy locations, which Connolly expects to lead to an improvement in top-line growth and significant margin expansion. Connolly says Gap is committed to equal pay, sustainably sourced cotton, and powering its stores with renewable energy. The company recently reinstated its dividend and resumed shareholder repurchases, she notes.
Connolly also points to advertising and marketing leader Interpublic Group (IPG), another outsized fund holding. She says Interpublic’s leaders are partly compensated on diversity goals, strive for pay equity, and align with the UN’s women’s empowerment principles. The company also has 40% gender diversity at the board level, which she says is well above market averages. She believes CFO Ellen Johnson is focused on expanding the company’s margins and generating free cash flow that can be allocated to dividends and share repurchases. Connolly adds that the stock trades at a hefty discount to the broader market halfway through the year.
Lastly, Connolly says Otis Worldwide (OTIS), an elevator company, has benefited from customers replacing old lift systems with more-efficient technology. She likes that most of the company’s profit comes from legally required elevator maintenance, and that CEO Judy Marks is working to boost organic growth while striving for gender-based pay equality. Connolly also cited this stock’s attractive valuation relative to peers.
“Companies with a stakeholder mindset often do a better job attracting and retaining talent,” Connolly contends. “They can be more innovative, given the diversity of thought that exists in the organization, more efficient as they try to lower their use of natural resources, and, because of solid governance structures, better at managing business risks. I think all of these traits can make these organizations more resilient over time.”
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