Presented by Syntax advisors.
Maragreta Hricova Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investments. I’m Margareta Hricova and joining me today is Patricia Lizarraga, managing partner at Hypatia capital and Deborah Fuhr. Welcome, Patricia and Debbie.
Patricia Lizarraga Thank you for having me.
Deborah Fuhr Thank you. Great to see you, Patricia. When and how did you decide to invest in businesses that are run by female CEOs?
Patricia Lizarraga So Hypatia Capital has been investing in women in leadership for over a decade, and it started with my investment banking career. I was a coverage banker, so my natural clients were chief executive officers, CFOs and board members of medium and large corporations. Every once in a while I would get a female CEO or female CFO to cover, and I would be inspired by their business acumen, by their performance, and kept thinking, Well, I wish I had more women clients, I wish I had more women investors. And that was how I started thinking about starting Hypatia Capital and focusing on women in leadership.
Maragreta Hricova What is the methodology for the Hypatia Women CEO Index?
Patricia Lizarraga So the Hypatia Women CEO Index is meant to isolate and measure the performance of female chief executive officers. So basically, we take the universe of women CEOs of American companies traded on U.S. stock exchanges that have a minimum market cap of $500 million. So it covers small to mega cap. We take that data set and we equally weight it so that we are not overreliant on large companies. We also make it industry neutral so that there is not a bias to industries where there may be more female CEOs. So with those three constraints, we rebalance it on a monthly basis.
Deborah Fuhr And how is the performance of the index been relative to the benchmark?
Patricia Lizarraga So the Hypatia Women Index has had fantastic performance since inception. 2022 was an exceptionally great year. In fact, it outperformed the S&P in 2022 by 540 basis points, but it also outperformed its benchmark the FT Wilshire Small Cap Stock Index, by over 300 basis points since inception, which is January of 2018. Now, the index and the ETF are not the same thing and past performance does not guarantee future results. But we are pleased with the performance so far.
Deborah Fuhr And why do you think it is that companies with female CEOs tend to have better financial performance?
Patricia Lizarraga If you look at the yearly report that McKinsey and the Lean In organization put out, it’s called Women in the Workforce, they document the additional barriers that are there for women to continue rising in the corporate ladder. So our thesis is that the women who do make it to the very top of the pyramid have something extra, have something extra that the other 95% of the CEOs who make it don’t have it. If you can isolate that, all things being equal, you should be able to capture the alpha.
Maragreta Hricova And why did you decide to create an active ETF?
Patricia Lizarraga So the Hypatia Women CEO ETF was created to allow all investors who believe in equality to be able to invest an equal amount of women and men CEOs. And we wanted to make it available to individual investors. We wanted to make it appropriate for institutional investors, and we wanted to make it appropriate for advisors to easily explain to their clients how they could achieve equality if that is something they’ve been asking about. And so we thought the perfect wrapper for that would be an ETF because of its liquidity, because of the fact that you can invest small or large amounts. Since the 3000 publicly traded companies in the United States, 95% of them have male CEOs. Most people’s portfolios are unbalanced from a gender perspective. The Hypatia Women CEO ETF allows you to remedy that in basically one trait, very easy execution to balance your portfolio for gender equality. We chose an active ETF wrapper because in fact there is quite a bit of movement of CEOs over the year and we have to constantly monitor it and make sure that we are identifying and isolating that female performance by changing the companies in the portfolio on a monthly basis. And the CEO ETF, we believe, is appropriate to be a core component of investors, domestic equities. It is sector balanced and it’s also size balanced. It turns out it’s about equal between small, medium and large companies. Therefore, we believe it’s appropriate for a core position.
Deborah Fuhr That’s great. Thank you for joining us today.
Patricia Lizarraga Thank you for having me there.
Maragreta Hricova Debbie, can tell us about some of the other news media industry?
Deborah Fuhr So we’re looking at cleaning the data. And it does take time because many exchanges only provide data, typically eight business days after the end of the month and don’t provide daily updates. So we are still waiting for some data. If we look at where the global ETF industry ended the year, it looks like it’ll be at $9.2 trillion. And so basically because of market movements, we have seen the assets in the ETF industry decline by $1trillion in the past year. So when we looked at where we ended 2021, it was at $10.2 trillion. If we look at net inflows, we’re on track for the second best year with net inflows of 855 billion compared to a year ago, it was $1.3 trillion. And if we look at the U.S., which is the biggest pool of assets, the net inflows in 2022 look to be 607 billion net new. While a year ago it was 919 billion net new. So still a very good year. We’ve had 43 months of consecutive net inflows, but the market has not been very friendly to any kind of exposures last year given the war in Ukraine, inflation, other political and economic news going on. That’s it for the preliminary numbers. We’ll have more in the next few days and we’ll be sure to share more with you on future episodes.
Maragreta Hricova Thanks again to Patricia for joining us today and to our sponsors, Syntax Advisors and of course to all of you for watching. To watch prior episodes and to see news from the ETF industry, visit us at ETFTV.net. Thank you.
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