Tony HazellMay 30 2018

Gender fund not enough to fix diversity

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As a former editor of mine was prone to say, ‘Has the world gone completely mad?'.

My thought was prompted by the launch of Legal & General Investment Management’s gender diversity fund or, as they have called it, the Future World Gender in Leadership Fund. Really rolls off the tongue does it not?

The idea seems as garbled as the name; it ranks as one of the daftest fund launches I can recall.

Apparently Legal & General will score and rank companies according to four gender diversity measures: women on the board of directors; women executives; women in management; and women in the workforce.

It will track a Legal & General designed index of 350 UK listed companies, with the investments tilted towards companies with a higher diversity score.

The idea racks as one of the daftes fund launches I can recall

Do not get me wrong. I firmly believe there are not enough women in senior levels throughout industry and in the financial industry in particular. I have argued a number of times in this column that the financial advice sector is particularly poor at recruiting, training and promoting women. 

I find this utterly bizarre as it would seem to be an ideal career to encompass breaks and flexible working that many will want at certain career stages. I also suspect that some potential clients would find women easier to talk to and build a relationship with.

But in the financial world, names such as Inga Beale, the CEO at Lloyd’s of London, stand out because they are so few and far between. Back to Legal & General, where we must wonder what the basis is for the gender fund.

Apparently some research suggests companies with a greater proportion of women on their boards of directors tend to deliver better returns for shareholders than those that do not.

But such research was described as “naive” by Professor Alice Eagly of Northwestern University in the United States in an interview with the BBC.

It seems it can fail to take into account other variables. More sophisticated analysis has shown very small positive correlations between female board members and financial success. In fact, in some cases the relationship is negative.

Where there does seem to be a correlation is with more innovative companies that are likely to use talent more effectively regardless of gender. I would need more evidence than that before throwing my money at a fund built on such a precarious pretext.

Also, before launching such a fund, Legal & General might take a closer look at their own record. 

As I scanned down its list of managers past – the Gavins, Andrews, Kevins and Udays – I struggled to find a single woman in charge. But I must admit I lost interest soon after ethical.

Fees could deter customers

It probably will not surprise you that in the spat between Aviva and Standard Life over adviser charging I come down firmly on Aviva’s side.

Standard Life is concerned that customers with smaller pensions may be put off from seeking advice altogether if they have to charge even when no move is made. That seems to be implying advice not to move your pension is worthless while advice to move is worth a fee.

The FCA is concerned that the business models of some firms may be commercially dependent on a proportion of clients transferring. It presumably feels that firms could reach a position where, after advising some clients not to transfer, the pressures increase to advise on a transfer.

Of course a good adviser will only want what is best for his or her clients. But it is not the good advisers we have to worry about, is it?

The power of dividends

Every so often an email drops into my inbox from Fidelity International showing the power of dividends.

The latest tells me that if you had invested £100 a month in the FTSE All Share Index over 30 years you would have £140,585 if you had reinvested dividends, but just £70,923 if you had taken them. That is roughly twice as much money. 

But take off the initial investment of £36,000 and the actual return is £104,585, compared to £34,923 if you had taken the dividends. So reinvesting dividends would have roughly tripled returns over the past 30 years.

That is an astonishing difference, making a return of just under 8 per cent a year.

Over 20 years the return would be a tad over 7 per cent a year giving £51,674 for a £24,000 investment. Without the dividends you would have £34,907. So reinvesting would have boosted the return 2.7 times. Dividends are the power in any portfolio and we should never forget it.

Tony Hazell writes for the Daily Mail's Money Mail section