When it comes to investing, there is often just one metric that matters—how much of a return can a company offer its investors? Research has found that companies with solid economic fundamentals and gender-diverse senior management as well as initiatives aimed at promoting gender diversity, may have a sustainable advantage over the competition.
“If the S&P looked like my fund, we’d have about 200 more female CEOs, more than 50 additional female CFOs, and 100 more boards with one-third female representation,” says Nicole Connolly, portfolio manager for the Fidelity® Women's Leadership Fund (
“We would have more weeks of maternity and paternity leave, more commitments toward equal pay, and more flexible work environments. All of that would be leading to a better workplace for everyone,” she says.
Viewpoints caught up with Connolly to find out more.
Is CIO of sustainable investing/co-head equity sustainable investing at Fidelity, in addition to managing the Women's Leadership Fund. She joined Fidelity in 2000.
Why is it important to prioritize female leadership and development?
Connolly: We looked over the past 10 years of data and found that companies that had above-average female representation in their management team and had diversity policies in place—like child care, a flexible work environment, and return-to-work programs—those female-forward companies outperformed the market over the past 10 years.
Unfortunately, due to the pressures placed on women during the pandemic, women are increasingly leaving the workforce or taking a step back in their career. In 2020, women accounted for more than half of the job losses by May of that year despite representing only 39% of the global workforce.* These challenges have been even more prominent for women of color.
This makes the mission of the fund even more urgent as we support and invest in companies that are focused on retaining female talent and getting more women to come back into the workforce.
How do you define a company with commitment to gender diversity?
Connolly: The fund invests in companies that we believe are committed to promoting women. We look at the leadership and board characteristics, of course, but here’s what I’ve found in doing this work over the last few years: It’s often the initiatives, philosophies, and policies that result in meaningful progress on diversity and come together to create a culture of inclusion. When people feel like they belong and their voices are being heard, I believe they feel motivated to do their best work and that should in turn lead to better company performance over the long term.
To be considered for inclusion in the fund, a company has to meet one of 3 criteria: influential female leader on the executive team, a gender-diverse board of directors where at least 33% of the board are female directors, or best-in-class gender diversity initiatives. While this is a decent starting point in assessing a company’s diversity profile, our process then goes deeper into the evaluation of a company's diversity initiatives, encompassing 25 different criteria.
Examples here include whether a company is monitoring its annual progress in hiring, retaining, and promoting women; its approach to providing equal pay for equal work; leadership development programs aimed at helping high potential women take the next step in their career, and the presence of both maternity and paternity leaves.
Other examples of diversity initiatives include flexible work environments, stated diversity goals, LGBTQ+ initiatives, and accommodations for people with disabilities.
While our holdings might not be perfect along every diversity dimension today, we believe the firms we invest in are on a genuine and committed path toward gender equality.
What is your investment approach?
Connolly: Our process starts by looking for companies that have the most attractive diversity profile with compelling underlying fundamentals.
On the fundamental side, we focus on high-quality companies with strong and durable market positions, recurring revenue models, and attractive growth opportunities. We look for companies that have cost levers or inherent operating leverage in the business model that allow for stable or expanding profit margins. Another consideration is the ability to generate strong free cash flow and to be responsible about the uses of that cash flow.
Weaving in the ESG (environmental, social, and governance) factors is part art and part science. With the help of our ESG team, we have now scored 700 companies across our 25 different diversity criteria.
With the score in hand, we can build a fund with exposure across the market because we know the leaders in diversity in each sector. So that’s the science piece, but sometimes things that look good on paper aren’t always what they seem.
That is where the art piece comes in. We meet with companies to understand why diversity and culture is important to the senior executive team and the board. We talk to the people who are executing on the firm’s diversity strategy. All of this tells us a great deal about the culture and a company's ability to harness what, in some cases, is its greatest asset—talent.
How has your diversity criteria changed over time as you’ve learned more?
Connolly: Like so many, we were galvanized by the events of 2020, including the death of George Floyd and the devastating impact of COVID-19 on the Black community—with ongoing effects.
With this in mind, we continue to evolve our company evaluation process to go beyond gender in our analysis of underrepresented populations. We believe that diversity of thought across all dimensions leads to stronger businesses and communities.
In our evaluation of companies, we are looking for the presence of pay reviews based on both gender and race, training to make sure there is no bias in the interview process or in the evaluation of talent, partnerships the company is engaged in to bring more diverse talent into the organization, and diversity targets and commitments.
We are also looking at how companies score on publicly available indexes, like the Corporate Equality Index, which measures an organization's initiatives for the LGBTQ+ community, and the Disability Equality Index, which measures the accessibility of employee and customer experiences for the disability community.
Our evaluation process will continue to evolve as we obtain new sources of data and learn more from companies in our engagements on ESG (environmental, social, and governance) topics. We believe efforts undertaken by companies such as Accenture, Nasdaq, and Hubspot, as well as many other companies in the fund, reflect a deep commitment to advancing diversity and building inclusion for all underrepresented populations and for the benefit of the entire organization.
Is there a company that exemplifies the principles you’re looking for?
Connolly: I've been spending more time recently researching how companies work to promote gender equality in their communities, and one example that really stuck out was Elevance Health, formerly Anthem (ANTM). They are doing really inspiring work to promote maternal health, especially for women of color and their babies. Currently, Elevance is among the top 10 holdings of the Fidelity Women's Leadership Fund, at 3.45%
Maternal health is a high priority for Elevance as a managed health care company. Preterm births represent 50% of their total maternal health costs but account for less than 9% of births. The company is also working to address disparities between Black and White mothers: Black mothers experience at least 20% higher risk of adverse maternal and child outcomes.
So with that in mind, they have been working with doctors in the neonatal intensive care units (NICU) of hospitals to try to improve patient outcomes. Some of the things Elevance has worked to implement include:
- improving an aspirin regimen for the risk of preeclampsia;
- eliminating elective deliveries prior to 39 weeks;
- developing more-predictive analytics to identify women with high-risk conditions; and
- targeting regions where there are high racial disparities.
As a result, the length of stay in NICUs is down more than 20% and the number of days spent in NICU is down by more than 30%.
Investing in companies that are working to promote equality in their communities is yet another way this fund can have a positive impact on women globally.