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UBS – gender diversity Special Edition

Saturday, September 2nd, 2017 | bitcoin updates

Gender diversity as a sustainable investment factor

The classical investment theory is based on quantitative indicators in order to derive optimal decisions. The main focus here is the return on investment and risk, which are offset in a portfolio. Over time, however, this basic approach has been further differentiated and, in particular, supplemented by factors that influence the extent of return and risk.

This does not necessarily have to be quantifiable quantities that can be precisely ascertained, but qualitative criteria can also be used. For the sake of sustainability, ecological or ethical standards are also formulated for the investments. A basic idea of ​​sustainable investments is that it will have a positive impact on the company's performance in the long term if the requirements of all stakeholders are taken into account. Gender diversity can also be attributed to the category of sustainable investment criteria.
Suitable candidates are available

That this is not a simple quantitative quantity is relatively obvious. Because it is difficult yet to clarify exactly where the optimal level of gender diversity lies in management bodies, let alone whether there is an "too much" in this area – simply the statistical basis of companies with a large number of women is enough Top management not out. The issue must be viewed from its historical origins: the starting point is a stated massive underrepresentation of women in top management. However, the theoretical and empirical findings suggest that an increased gender diversity in the management committees creates positive effects – up to an above-average return on these companies.

This is why it is worthwhile to look at companies that have already achieved better results than the average with regard to gender diversity. And there are such candidates because, not least because of the research results, which resulted in different legislative initiatives in many countries as well as a slow rethought in the corporate sector, a positive development can be observed, albeit from a low level. UBS has evaluated the numbers of companies in the broadly diversified US index Russell 1000 and the MSCI World Index. In 2011, the proportion of companies with at least 20 per cent of positions in the board of directors was still just under 10 per cent. Since then, however, the quota has increased steadily, and by 2015 almost one in five companies from the two indices were able to meet this criterion. There are, therefore, companies that are above-average in terms of "gender diversity"; they need to be targeted.
Outperformance

The fact that this effort is worthwhile for an investment is demonstrated by empirical studies. In the section "Gender Diversity Boosts the Return", it has already been stated that a more balanced mix of gender in the governing bodies has a positive impact on the returns generated by the companies. It seems obvious to suggest a positive effect in terms of share performance as well, and this is also demonstrable.

McKinsey ("Woman matters") is one of the pioneers in the investigation of this phenomenon. Within the framework of the first large study of the consulting company on the subject, the outperformance of the corporations with a pronounced gender diversity compared to the EuroStoxx 600 index was increased by a factor of two years 1.7. However, the reference group was relatively small in the middle of the last decade.

In a recent analysis, UBS has devoted itself to the issue and has taken a large population, the MSCI World Index. Various threshold values ​​were tested for gender diversity. The criterion was that the Board of Directors should have at least two women, or 80% of the management should consist of men. For a portfolio of companies from the MSCI World Index that fulfills this condition, an outperformance of around 2 percent p.a. could be achieved over a period of five years (2011 to 2015). the selection portfolio has been re-adjusted every three months, depending on the development of the number of female executives in the committees.

It may therefore be worthwhile to take into account the factor of gender diversity in investment. Although there are different results on the extent of the effect that can be achieved, the advantage of the approach is also theoretically well understood.

If you want to invest in the Solactive Global Gender Diversity Index, UBS offers two Open End Index Certificates.

Next: Multi-stage selection process with high requirements

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