Why Women Investors Appear to Outperform Men

WANT to see an exciting array of neckties? Go and find an internet list of "the world’s greatest investors". The result inevitably features Warren Buffett, George Soros and absolutely no women. But the notion that the fairer sex is inherently better suited to investment profit has gained traction in recent years, to the point where it has almost become conventional wisdom. A study published this month, for example, claims that hedge funds run by women returned 9.8% in 2013 (to the end of November), versus a paltry 6.13% for the HFRX, which tracks hedge funds generally. It confirmed a trend found in earlier years.

Plenty of stereotypes are wheeled out to explain this phenomenon. First and foremost is the idea that women are apparently more risk-averse. Lacking the testosterone that inevitably leads men to peril, be it on motorbikes or in front of their Bloomberg terminals, they eschew trades in the complex structured investments that blew up the world economy, for example. There is plenty of pseudo-psychological analysis to be found on the other side of the debate, too. Paul Tudor Jones, a founder of a hedge fund who features regularly on those "greatest investors" lists, attracted ire when he said last year that women traders lost their edge as soon as they gave birth (he later apologised). But overall, the female brain is often said to be better suited to making a killing on trading floors.

This seems suspect. If risk appetite were a factor, you’d expect men to beat women in years when risky assets do well (for example 2013, when equities rallied and safe bonds faltered) and vice versa in years when risky assets fall compared with safe ones. The fact that female-run hedge funds have apparently outperformed in both up- and down-years suggests something else is afoot. One plausible reason for the latest finding is that hedge funds managed by women tend to be smaller ones, which as a whole tend to do better than their large counterparts. That and other differences in the way the performances of female-run and other hedge funds are calculated seem at least as convincing as the biological argument for the divergence. Such caveats won’t stop the study, by a small professional services firm, from getting plenty of attention, all but ensuring it will be repeated next year, thus feeding the conventional wisdom a little more. Looking at more rigorous academic papers, the most that can be said is that men and women make similar investment decisions, but that women's returns are better because they don’t buy and sell shares as often, so incur fewer fees.

That isn’t negligible, but it hardly suggests a convincing winner in this financial battle of the sexes. The prosaic answer is probably that women are neither better nor worse than men at picking stocks. Even their imputed cautious trait is probably imaginary, or at least exaggerated, another recent study found. Few women manage big hedge funds for the same lamentable reasons that they too often struggle to break through glass ceilings that keep them from reaching the top of other professions. Any claim that one gender is better suited to a given job—be it in business, politics or anything else—should be treated with immense scepticism.

This post originally appeared on The Economist. To get more of the weekly magazine, SUBSCRIBE NOW for just $15, a special offer for DailyWorth readers.