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Industry Analysis

The Wonder Women of Hedge Funds

It's Women's History Month: Wall Street Edition. Highlighting a list of funds led by women, and an index that extracts the best ideas from women-led funds.

Kelly Xia
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As we continue the celebration of International Women’s Month, we’ve decided to highlight the successes of the women in our industry by exploring what's happening in women-led funds.

We invite you to explore the full analysis, including details on list of funds, on this dashboard, which we will be referencing throughout this commentary.

Identifying Women-Led Funds:

For our analysis, we assembled a peer group of 18 women-led hedge funds. We started with a more comprehensive list sourced from 100 Women in Finance, and narrowed it down using the following criteria:

1.     Founded or currently led by a woman

2.    Submitted Q4 2020 13F filling

3.    Traded on US exchanges

4.    Meaningful AUM and position count (>$100M and >5 positions count)

Figure 1: Featured Women Led Funds

You can explore these fund’s profiles, exposures, overlap, and see which are top alpha producers in the first section of our research dashboard.

Best Ideas from Women-Led Funds

Building an index to extract the collective wisdom of a subgroup is a strategy Novus regularly practices, be it our Healthcare Specialists Index, or the Novus Conviction Index. For more on our extensive research regarding manager conviction, check out our minisode on Best Ideas.

To identify the "best ideas" from among these women-led funds, we isolated securities that exceed a proprietary threshold of conviction. We narrowed the list to the top 20 conviction names, and compiled them into an aggregate portfolio.

For our analysis, we then compared this portfolio against the Novus Hedge Fund Universe (a male-dominated industry index), as well as the wider market.

Performance of The Women’s Best Ideas Index

Let’s start with a couple market benchmarks. Taking a look at the performance against the S&P 500 and Russell 1000, we see that our Women’s Best Ideas index has outperformed the market over the past five years. Like everyone else, the index dipped during the pandemic, but found its way back since November. At the end of 2020, the fund boasts ~140% over 5 years.

Figure 2: Women's Best Ideas Index vs. Market Indices

There’s a similar pattern when comparing to the Novus Hedge Fund Universe. Our Women's Best Ideas Index barely lagged the wider hedge fund universe for a moment at the beginning of the pandemic, but outperformed the wider industry since September of 2020.

Figure 3: Women's Best Ideas Index 5 Year Contribution

A Mid-Cap Focus Pays Off

Leveraging Novus's analytics, we can examine the breakdown of active contribution by category. After grouping the constituents by market cap, we see that most of the active contribution has come from mega- and mid-cap.

Figure 4: Women's Best Ideas Index, Active Contribution by Market Cap

By referencing our dashboard, we can see that compared to the wider Hedge Fund Universe, this index is heavier weighted towards small & mid-cap names.

Figure 5: Market Cap Weight Difference Between Women's Best Ideas Index and HFU

Seeing as mid-cap is both a high-alpha generator, as well as a differentiates from the HFU, let’s dig in a little more...

We can see from figure 6 that the higher concentration towards this category is relatively recent, whilst the wider hedge fund Universe has maintained a steadier allocation towards mid-cap.

Figure 6: 5-Year Exposure for Mid-Cap Names: Women's Best Ideas vs HFU

This focus on mid-cap has also proven a good bet for women-led funds, as seen by the alpha generation from the category over the last 5 years.

Figure 7: 5-Year Alpha Generation for Mid-Cap Names: Women's Best Ideas vs. HFU

Women Lead in Healthcare

Conducting the same analysis for the sector, we can see that the top active contributor is healthcare.

Figure 8: Women's Best Ideas Index, Active Contribution by Sector

It’s interesting to note that compared to the wider Hedge Fund Universe, women-led funds (or at least, their best ideas) tend to lean heavier towards Materials and Consumer Discretionary, and Healthcare; and less towards Industrials and IT.

Figure 9: Sector Weight Difference Between Women's Best Ideas Index and HFU

Examining the exposure trends for healthcare like we did in the previous sections yields a similar narrative, suggesting that in the midst of a global pandemic, women-led funds have recently become leaders when it comes to investing in the healthcare sector.

Figure 10: 5-Year Exposure of Healthcare Names: Women's Best Ideas vs HFU

Figure 11: 5-Year Alpha Generation of Healthcare Names: Women's Best Ideas vs HFU

We urge readers to perform their own analyses using our research dashboard to explore other categories and trends.

From even just these two insights regarding performance and the exposure, however, we can begin to see a relatively direct relationship between the increased exposures to healthcare and mid-cap names with the outperformance in recent months.

Top 5 Winning / Losing Names

Figure 12: Top 5 Winning Positions in Women's Best Ideas Index
Figure 13: Top 5 Losing Positions in Women's Best Ideas Index

Winning names came from various sectors and market cap. On the other hand, the top 5 losers were all from the energy sector. This intuitively makes sense as the energy market has become more volatile and harder to predict in recent years.

Conclusion

We at Novus call on our industry to promote diversity, equity, and inclusion. We are pleased to celebrate the diversity within our industry, and we were thrilled to find in this analysis that funds led by women tend to have a more diverse and unconventional approach to security selection. (Allocators take note!) That said, we look forward to the day when our analysis of women-led funds reaches a number beyond a couple dozen. (To that end, if you feel your fund has been overlooked in our analysis, please reach out! We’d love to chat.)

“There is no limit to what we, as women, can accomplish.” – Michelle Obama
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