Last year, the UK’s Financial Conduct Authority issued a warning about investment apps: Some of them with “game-like elements” — badges, points, leader boards, funny post-trade messages — are “problematic, even that may contribute to “gambling-like”. , investor behavior.” It added that new legislation is on the way, so firms that rely on gamification to start trading may want to review what they did.
This is an implicit threat from FCA, so I think there is a conversation going on about what level of gamification is a good thing (it engages a new audience) and what is bad (it makes users borrow money). and uses it stupidly). But if the regulator is concerned about the epidemic of stock gambling, I wonder if it’s looking in the right place. Britain’s young people, after all, appear to be remarkably savvy when it comes to investing: they mostly have auto-enrolment pensions and gravitate towards low-cost index funds.
Vanguard notes that 74% of UK customers who signed up last year were under 45 and 41% were under 30. Vanguard products are ok, but don’t give any dopamine hit. Hargreaves Lansdowne, Britain’s best-known investment platform (without in-app points) since the pandemic, has also reported a rise in the number of young investors opening accounts. Its users are not looking to top trader boards.
So who should be watching FCA? I recommend professional fund managers. Look what they are doing. These are the people who should know that valuations matter – it is the price you pay for a property that determines your returns. They know that diversification matters too. They also know that a rapidly increasing supply of money leads to inflation (albeit with Milton Friedman’s ‘long and variable’ lag), that inflation means rising interest rates, and that highly valued stocks lead to rising rates. Struggle as
Yet what did many of these experts do in 2021? They piled into valuable US tech stocks and went berserk for environmental, social and corporate governance (ESG) goals, the latter of which not only limited their investment universes but found no long-term evidence that this is a Might be a good idea. Gambling for a Short-Term Dopamine Hit? Who’s to blame now?
This brings me to one troubling public offering: the Hypatia Women CEO ETF from Hypatia Invests, a company that offers “indices with a gender-lens,” such as its Hypatia Women CEO Index and Women’s Hedge Fund Index. The ETF, as the name suggests, aims to track 115 ex or listed companies in the US that have a market capitalization of more than $500 million and are run by a woman.
The firm says you should invest for three reasons: to diversify, to “invest your values” and to “make an impact.” He is good Who wouldn’t want all those things? However, in my experience, most investors want something else as well: returns. Can they get them? The ad says ‘yes’. It notes that the index performed exceptionally well in 2022, significantly outperforming the FT Wiltshire Small Cap Index. It has outperformed that index by 3.04 percentage points since 2017. Or perhaps the fact that the best-performing stock in the S&P 500 over the past year (Occidental Petroleum, up nearly 118% in 2022) is run by a woman. This could be up because it is run by a woman or because it is an oil and gas company. Who can know? But the fact that this isn’t clear means it’s hard to argue that companies run by female CEOs tend to perform better over the long term.
It seems maybe they should—not necessarily because women think or behave differently, but because, as an old McKinsey report points out, getting to the top has become increasingly difficult for this generation of women. Chances are good that the few people who made it are particularly brave, brilliant and resilient. Still, even though it sounds cool, just like ESG, we really don’t have any data to know.
There aren’t enough female CEOs, in vastly different market conditions, for the long term, for the numbers to tell us anything. It is not easy for men to be a CEO either. There is some further evidence that a firm with lots of female leaders or a generally diverse group of executives helps performance, and that female-led companies tend to have higher levels of gender diversity. Some investment products promote this idea, but again, not enough to be sure.
Building a portfolio of lucrative but unproven ideas is a gamble. This limits your investment universe and ignores valuations. This could be the fix for the big bubble that started deflating in 2022. In 2023, it’s silly. In today’s time, why would investors use an unproven metric (CEO gender) instead of one that is known to work (valuation plus diversification)?
Merrin Somerset Webb is a senior columnist for Bloomberg Opinion covering personal finance and investing. ©Bloomberg
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