What are the characteristics of a "Women's Leadership" ETF?
Last week on March 8, International Women’s Day, I did an Instagram post about the launch of an ETF by Royal Bank of Canada (the RBC Vision Women’s Leadership MSCI Canada Index ETF). This particular ETF is meant to track the MSCI Canada IMI Leadership Select Index (I will call it the “Women’s Leadership Index” for this post). The Women’s Leadership Index “aims to represent the performance of companies that exhibit a commitment towards gender diversity among their board of directors and among the executive leadership positions. The index includes companies which are gender diversity leaders in Canada.” I decided to do a post this week delving into exactly what all of this means! What is this Women’s Leadership Index and how exactly does the new RBC ETF track or use it? What companies are actually in the Women’s Leadership Index or the ETF? I wanted to understand what this is really about for people, like me, not familiar with all of these terms. I would recommend reading my earlier post on what an ETF is before this post to get some background as to what we are talking about.
MSCI Inc. has investment banking roots and was formerly called Morgan Stanley Capital International. It is an American provider of stock market indexes and various investment tools. Its global equity indexes have been calculated since 1969 and initially, it used eight factors to develop its indexes: momentum, volatility, value, size, growth, size nonlinearity, liquidity and financial leverage. Most of those terms don’t mean much many of us but the point is that they use various different measurements to come up with various indexes. These indexes can be used by other investment professionals or companies to come up with products (like an ETF) that would track the index and get similar returns. As well, it provides a variety of research and information to investors, mainly institutional investors (like a large pension fund for example) to use in their investment decision making process. MSCI Inc. is a public company trading on the NYSE with the symbol, MSCI.
That is generally what MSCI does, but what exactly is their Women’s Leadership Index? Based on research from its website, this particular Women’s Leadership Index is comprised of companies from a larger parent index that meet the following criteria: 1. Number of Women in Leadership Position (At least 30% female directors or at least 3 female directors or 2 female directors and at least on women in a current executive leadership role) 2. Percent of Women on Board (percentage of female directors on the Board is greater than the average percentage of female directors on the Board of all companies in the Parent Index) and 3. Discrimination and Workplace Diversity Controversy (must not have faced very severe or severe structural controversies or diversity-related controversies). Companies meeting criteria within those categories, are pulled into the Women’s Leadership Index. The Controversy Score aims to exclude companies implicated in serious labour or human rights controversies. The idea with these types of specific indexes, is to allow investors to invest in companies that align with their values and beliefs.
Recognizing the criteria for picking the companies to go into the index, what companies actually comprise the Women’s Leadership Index? I wanted to see if information was available as to what companies were actually contained within the Women’s Leadership Index. I was able to find this information easily on the MSCI website and found the Top 10 Largest Constituents include: Royal Bank of Canada, TD Bank, Enbridge, Suncor, Bank of Nova Scotia, Nutrien, TransCanada Corp., Canadian National Railway, Bank of Montreal and CIBC. The majority of the companies in the index are in the financial sector.
Now that we have determined what MSCI is and what the Women’s Leadership Index is, the final step is to determine how the RBC Vision Women’s Leadership MSCI Canada Index ETF is related to this parent index. We learn from the RBC website and fact sheet on this particular ETF, that it tracks the Women’s Leadership Index. What does this mean? The answer is actually quite simple – it means that the RBC ETF is made up of stocks, in the same proportion, as that of the Women’s Leadership Index in an effort to try and match the investment performance of the Women’s Leadership Index. Not surprisingly then, if we look at the top 10 stocks in the particular ETF, we find the following similar companies to that of the Women’s Leadership Index: RBC, TD Bank, Enbridge, Suncor, Bank of Nova Scotia, Nutrien, Open Text, CN, Transcanada Corp. and Bank of Montreal. You can think of the Index as somewhat of the study guide and reference material and the actual ETF as the product that takes that information and turns it into a product in which you can actually invest money.
So now we know what exactly makes up this RBC ETF, how it connects to a parent index and what criteria is used for picking the "women leadership" companies. I would be interested in learning about the criteria used in other socially responsible or ethical ETF's in future posts.
***Top photo courtesy of Mong Bui on Unsplash