Gender Diversity ETFs Hugely Popular in Canada

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Gender diversity ETFs continue to gain momentum in Canada following the launch of the RBC Vision Women’s Leadership MSCI Canada Index ETF (RLDR).

It launched on March 8 (International Women's Day) and began trading on the Aequitas NEO Exchange Inc.

It joins two other recent Gender Diversity ETFs in Canada: The Evolve North American Gender Diversity Index ETF (HERS) launched in September and became the first Canadian domiciled ETF with a gender-diversity mandate. This was followed in December by the Mackenzie Global Leadership Impact ETF (MWMN).

Deborah Frame, President and Chief Investment Officer of Frame Global Asset Management, said the idea of a pure Canadian ETF originated following attention that the SPDR® SSGA Gender Diversity Index ETF (SHE) received when it won the “Best ETF of the Year” at the Inside ETFs conference in Florida in January.

“A conversation that was initiated with a number of providers in Canada led to the creation of RLDR at RBC,” Frame said. “Like SHE, I believe that from a business case perspective - a pure domestic focus will have widest appeal. RLDR is made up of Canadian companies exclusively.”

She added that OMERS, one of the largest pension funds in Canada, contributed $100 million of seed money into RLDR - a massive endorsement helping the fund with credibility.

ETF Trends caught up with Frame to discuss the launch and gender diversity.

ETF Trends: What's driving the gender diversity ETF momentum in Canada?

Frame: Gender diversity not only makes sense from a social perspective, it makes sense from a business and investment outcome perspective as well.

The most recent MSCI report that looks at women on boards finds that companies with both a more diverse board and stronger talent management practices enjoyed higher growth in employee productivity compared to companies with a diverse board only and to companies with strong talent management practices only.

These companies outperformed companies with both mostly male boards and lagging talent management practices and those companies had the lowest rates of employee productivity growth, relative to industry peers.

ETF Trends: What is unique about the launch of RLDR?

Frame: While the RBC product is the third gender diversity ETF to hit the Canadian market, it is the first fund to focus solely on Canadian companies.

Selecting a pure Canadian play on gender diversity might be seen as a sign of home country bias but there are many benefits to this ETF for a broad section of investors in Canada.

As a country, Canada has a very progressive view on moving towards improved diversity and gender diversity is an important part of that mission.

The opportunity to isolate Canadian companies who have moved toward this goal allows investors to uniquely benefit from the anticipated better outcomes for these companies in a single investment vehicle.

Experience from Japan where a similar ETF was launched last year has shown that some companies that did not originally qualify for index inclusion have taken steps to make changes in order to be included.

ETF Trends: Any comments on the U.S. markets and gender diversity ETFs?

One of the challenges of any ETF is the index construction and the drivers of that index that are outside of the primary focus of the ETF.

In the U.S., SHE has exposure to companies than are hurt and helped by tax reform and tariff discussions in different weightings than the broader indexes.

In Canada, RLDR is market weighted by sector. The TSX is a more volatile index as it is highly concentrated in three sectors (energy, materials, financials) which are quite cyclical, and has significant under-representations in information technology, health care, consumer staples and consumer discretionary, relative to the rest of the world. Also, the Canadian market has 36% of its capitalization in the top-ten stocks, compared to 17% for the US market.

But, history has demonstrated that in relative terms, regardless of the country, that companies that demonstrate a commitment to gender diversity have better investment outcomes than companies that do not.

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