Women investors have higher returns in good times and bad

Want better returns with lower fees and less volatility? Get a female fund manager.

 

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You’re driving to the lake this summer when you see a horrific single-car accident. Is the driver more likely to be male or female?  Most of the time, you’d be right if you guessed it was a man. In a study of motor vehicle accidents by insurance company 4AutoInsuranceQuote.com, 80% of all fatal and serious car crashes are caused by male drivers. Driving violations are higher for men in virtually every category: failing to yield, not wearing seat belts, speeding, and driving under the influence.

It turns out the same principle may apply to investing. Women are more likely to follow responsible investing rules—and make more money in the process.

The age-old rule of the investment road, of course, is buy low and sell high. But when stocks fell during the 2008 financial crisis, 10% more men sold stocks than women, according to research done by the Vanguard Group. Furthermore, women’s portfolios didn’t drop as far, thanks to their higher allocation of bonds—the seatbelts of the finance world.

This trait might explain why, during the tumultuous period between 2005 and 2010, Vanguard’s female clients earned on average 5% more than men.

But here’s the interesting part: women fare better in bull markets, too. University of California researchers Brad Barber and Terrance Odean studied 35,000 household discount brokerage accounts between 1991 and 1997, revealing that single women earned nearly 3% more a year than single men, on a risk-adjusted return comparison. Over an investment lifetime, such a discrepancy, compounded, would see single women’s accounts exceeding single men’s by more than 100%. (Married men did better, but still underperformed single women.)

A 2005 Merrill Lynch investment survey confirmed that more portfolio violations are committed by men. Shunning the safety of diversification, 32% of men are more likely to allocate too much money to a single investment, versus 23% of women. Then there’s the higher tendency for men to swerve in and out of investment traffic by excessively trading, rather than sticking to a plan. Barber and Odean found that men trade 45% more frequently than women, with single men trading 67% more often than single women.

A study of fund managers by the Centre for Financial Research in Germany revealed fund returns between the sexes were similar, but women managers traded less frequently—ensuring lower transaction costs and fewer taxable penalties for their clients.

Even in the riskier, testosterone-fuelled hedge fund sector, women did better. Hedge funds have a high mortality rate, but Man Down author Dan Abrams found surviving funds managed by women between 2000 and 2009 returned 9% per year, compared to the 5.82% men earned.

With great investors like Warren Buffett, Peter Lynch and George Soros being male, you might not want to give up on men completely. But the rules of the road are meant to be followed. More road warriors, it appears, can wind up in the ditch.

Andrew Hallam is the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned at School.

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