a weird Goldman report about gender and portfolio performance

I’ve only read about the Goldman report in the Financial Times, so no, I haven’t seen the original. I’m not sure how seriously it’s intended to be taken, although it certainly has gotten a lot of press coverage.

The thing that’s probably the most weird, but not such a big surprise, is that the investment world continues to be one of the last bastions of anti-woman bias. My experience during my working career on Wall Street was that female analysts and managers were generally head and shoulders above their male counterparts but didn’t receive much recognition. You’d think any results-oriented business would notice.

Of more mundane oddness:

–the study only covers the seven months from January of this year through July. This is a short time span

–both female- and male-run funds underperformed, with the former group behind their benchmarks by about 50 basis points, the latter trailing by 160 or so

–both groups were underweight technology and overweight banks. The difference between them is reportedly attributable to the size of their two wrong-headed bets. Tech was up by about 20 percentage points through July, while banks were down about 20, so the performance differential was 4000 basis points! What could these managers have been thinking?

Banks do well when the economy is humming along and interest rates are rising. What we’ve unfortunately got instead is pretty much the opposite situation, with a totally incompetent administration making things significantly worse. Yes, banks may be cheap, but there’s a pretty good reason for that–and no profit recovery in sight.

On the other hand, half or more of the earnings of most tech companies come from outside the US, where just about every leader has outdistanced Trump handily in protecting their local economy from the coronavirus (not a high bar). Also, the current work-from-home environment has accelerated adoption of new tech services and created lots of extra demand for tech devices. So, yes, tech stocks are trading at high PEs. But interest rates are at practically zero, and no chance of rates rising any time soon, so 30x forward earnings (think: MSFT) shouldn’t be a problem. That’s the multiple arguably justified with the 10-year Treasury at 3%, 4x+ the current 0.68% yield.

No wonder index funds are so popular.

2 responses

    • I haven’t seen the actual report, but I’ve read articles about it in the Financial Times, the Wall Street Journal and on Bloomberg. In a sense, the report isn’t surprising. Wall Street is notorious for its poor treatment of women, implying you’ve got to be very good and very tough to survive (I went out of my way to establish business connections with women brokers because they’d always be highly competent). Also, for whatever reason, the typical professional equity portfolio manager operating in the US market underperforms the relevant index fund, even before deducting the fees charged. After fees, maybe 85% of managers underperform.

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