In Focus: Megatrends  

How female demographic trends affect investment markets

 

Historically, investing, growing wealth, and being ambitious with money has been steeped in masculine connotations but this is changing, with profound consequences for markets, says Annabelle Williams.

Speaking on the latest FTAdviser In Focus fireside chat, the personal finance specialist at Nutmeg says culturally women have been encouraged to manage their money solely in relation to household finances.

But now growing numbers of women are becoming engaged in personal finance, money management and investing in a way that previous generations were not.

What's more, as the female population are becoming more active workforce participants, this can affect how markets are performing.

A recent report from Ned Davis Research points to the mature-to-young ratio, which says if there is a large proportion of mature workers versus young workers equity markets tend to outperform.

The reason is that mature workers are more productive and make more money which they then put into equity markets, driving up price. Women play a unique role in that ratio as they are less likely to earn more but more likely to put money away for their retirement than men.

"The MY ratio, when it's applied to US markets, has predicted bull and bear markets accurately for the past 50 years," says Williams, "and the unique role that women play in this theory is that, although women still do struggle with the pay gap and having to take periods of time out of the workplace and spend time on uncompensated labour looking after children or parents, despite those challenges they still save more for retirement than men do as a proportion of their income. And they're also more inclined to go for lower risk lifestyle funds that match their age group.

"In aggregate this basically means that as women continue to narrow the pay gap, gain as much economic power as men do and continue to increase their labour force participation, that will be positive for equity markets."

Governments, such as the Japanese's under Shinzo Abe, have already responded to this logic, creating incentives for firms to improve their diversity targets in order to foster economic prosperity.

And there have been industry initiatives in the UK too, such as Helena Morrissey's Girl fund, though that failed to attract sufficient interest at the time.

"There could be lots of reasons for that," says Williams. "But if we take a step back and think rather than looking at specific products, what can the industry do to better cater to female investors, one popular route is for companies to have dedicated female hubs on their websites. At Nutmeg we don't have one of them and that's because we believe that like the gym, investing should be gender neutral."