10 Fantastic Funds With Diverse Leadership
If you really want to invest for change, pay attention to who is running the show. Here's a list of funds ran by a diverse group of portfolio managers.
The financial services industry is known for being monochromatic.
White men represented 60% of senior-level management in the industry in 2018, according to research released by the U.S. Government Accountability Office earlier this year.
The palette is even more bare on the asset management side. According to the John S. and James L. Knight Foundation's most recent "Diversifying Investments" report, released in 2019, minority- or female-owned firms accounted for a mere 0.9% of total assets under management (AUM) in 2017.
It's not for lack of performance. The report showed zero discernable difference between the performance of woman- and minority-owned funds and that of non-diverse owned funds.
At a time when investors are increasingly seeking out positive change by choosing to own funds and with environmental, social and governance (ESG) criteria, how can most of the assets still be managed by white men?
If you really want to invest for social change, pay attention to who is running the mutual funds and exchange-traded funds (ETFs) you buy. Even if these funds aren't centered around ESG or socially responsible investing (SRI) criteria, supporting diverse portfolio managers can help move the bar within the financial industry.
Here, we highlight 10 funds ran by a diverse group of portfolio managers. They show just how easy it is to invest for diversity without sacrificing results.
Data is as of June 22.
Vanguard Total World Stock ETF
- Fund category: Large-stock blend
- Assets under management: $29.8 billion
- Expenses: 0.08%, or $8 for every $10,000 invested
The Vanguard Total World Stock ETF (VT, $102.97) is a perfect example of diversity in familiar places. The fund, which offers one of the most diverse portfolios in the fund industry, has been co-managed by Christine Franquin since 2013.
"There's a myth that index portfolio management is just pushing a button to track an index," Franquin says. "In reality, it is much more challenging, but it's a challenge that I enjoy."
With over 9,000 holdings of companies located in 47 countries in the VT portfolio, managing the fund requires a truly global mindset and understanding of many different markets, she says. It's also a collective effort between herself and experts in Vanguard's London and Australia hubs.
The fund is up 12.1% for the year to date, and averaged an annual return of 11.4% between 2013 and 2020 – on pace with its benchmark, the MSCI ACWI Index.
T. Rowe Price QM U.S. Small & Mid-Cap Core Equity Fund
- Fund category: Mid-cap blend
- Assets under management: $202.6 million
- Expenses: 0.87%
The four-manager team on the T. Rowe Price QM U.S. Small & Mid-Cap Core Equity Fund (TQSMX, $20.07) is an example of diversity at work.
The fund is co-managed by Prashant Jeyaganesh, Vidya Kadiyam, Navneesh Malhan and Sudhir Nanda, who collectively have 55 years of industry experience under their belts. Kadiyam and Malhan are recent additions to the team, but Jeyaganesh and Nanda have been managing it since 2017.
"Having worked in different kinds of jobs and in two countries helps me look at things from multiple different angles," Nanda says. He grew up and completed his undergraduate and graduate education in India, where there are many different sub-cultures and over 20 languages spoken. As a result, he says he also has "a fair bit of understanding of different cultures and can work with diverse groups of people."
Jeyaganesh, who is of Indian descent, agrees: His cultural background and engineering degree have helped him understand other viewpoints as a portfolio manager.
The team takes a quantitative management approach – hence the QM in the name – by using models developed in-house to identify stocks for the portfolio. These models emphasize valuation metrics, followed by profitability, earnings quality and capital allocation. This makes it a truly actively managed fund, not an index tracker, but it still keeps the net expense ratio below average among the peer group at 0.87%.
Fidelity Equity Income Fund
- Fund category: Large value
- Assets under management: $7.9 billion
- Expenses: 0.60%
Investing in value stocks is by definition a contrarian strategy; one that requires seeing value where others do not.
As such, it's a strategy that "relies on being comfortable with discomfort," says Ramona Persaud, portfolio manager for the Fidelity Equity Income Fund (FEQIX, $70.59) and the Fidelity Global Equity Income Fund (FGILX). And few people are as adept at handling discomfort than those who know what it means to feel like an outsider.
She says her "differentiated perspective as a woman, minority, immigrant (and) mother" has helped her embrace difference and the discomfort that accompanies it. "This familiarity with 'unbelonging' is fundamental to successful value investing," she says.
Persaud has managed FEQIX since 2011. The fund invests primarily in large-cap value stocks with the goal of generating income without disregarding the potential for capital appreciation.
Morningstar strategist Robby Greengold attributes the fund's Bronze status to Persaud's deft management, noting she "looks for inexpensive, strategically well-positioned companies whose ample free cash flow generation can support or increase dividend payments."
RBC Global Opportunities Fund
- Fund category: Large-stock growth
- Assets under management: $375.6 million
- Expenses: 1.00%
Habib Subjally, senior portfolio manager and head of Global Equities at RBC Global Asset Management (UK) Limited, has quite a diverse backdrop. His mother was born in Africa, his father in India and he in Pakistan. He then went to school in Dubai before attending University in the U.K., where he now manages the RBC Global Opportunities Fund.
He says his diverse background has encouraged him to be "more open-minded about successful investments coming in different shapes and sizes." It has also given him an appreciation for the positive impact businesses can have on their communities and the environment, something he looks for when choosing investments for RBC Global Opportunities Fund (RGPAX, $21.14).
The fund aims to provide long-term capital growth by investing in global companies with strong business models, market share and management teams while emphasizing ESG factors.
"Not dissimilar to managing a business, we believe the keys to successfully managing an investment portfolio are having the right team, culture and purpose," Subjally says. "Culture is critical in turning a collection of skilled individuals into a strong team that can consistently execute on their investment process, overcome obstacles and prioritize continuous improvement and intellectual humility."
BlackRock Technology Opportunities Fund
- Fund category: Technology
- Assets under management: $8.2 billion
- Expenses: 1.18%
The BlackRock Technology Opportunities Fund (BGSAX, $62.87) is managed by Tony Kim, who took over the reins in 2013.
He is also the head of the technology equity team at BlackRock and has spent over two decades analyzing the technology sector. It's Kim's "specialized experience," that gives the fund its edge, according to Morningstar analyst Tom Nations.
Kim takes a deconstructionist approach by segmenting the technology sector into a map of themes, such as software, hardware and internet. This strategy lets him monitor around 1,300 firms.
From that, he creates a portfolio of around 100 companies. He holds a far smaller weight in tech behemoths like Apple (AAPL) and Microsoft (MSFT) than most benchmarks – each account for less than 4% of the portfolio – a strategy which could be a losing play in any other hands.
But Kim's keen eye has kept BGSAX well ahead of its benchmark, the MSCI All Country World Information Technology Index, and the Morningstar Technology sector category average.
- Fund category: Mid-cap value
- Assets under management: $3.2 billion
- Expenses: 1.04%
Headed by co-CEOs John Rogers, Jr. and Mellody Hobson, Ariel Investments is a pillar of diversity in the white-washed financial industry.
The company's commitment to diversity, equity and inclusion can be defined by what they call the three Ps: people, purchasing and philanthropy. Ariel Investments fosters diversity within the firm, as well as outside of it, by creating contractual relationships with minority-owned businesses and making philanthropic contributions to organizations advancing civil rights, public education, cultural expression and community well-being.
The firm offers five mutual funds, including its flagship Ariel Fund (ARGFX, $84.75), for which Rogers is the lead manager. It focuses on undervalued companies the managers believe have strong growth potential.
Rogers' willingness to go after beaten-down stocks can lead to volatility, notes Morningstar analyst Adam Sabban. That said, Sabban notes Rogers has a knack for making good bets in tough markets, such as the choice to buy travel stock Vail Resorts (MTN) and dental supply company Envista Holdings (NVST) during the March 2020 pandemic-induced decline. The stocks have handily outperformed since then, with MTN more than doubling and NVST nearly quadrupling. The team had similar success at stock-picking during the 2008 financial crisis.
Freedom 100 Emerging Markets ETF
- Fund category: Diversified emerging markets
- Assets under management: $59.1 million
- Expenses: 0.49%
If you want to support women breaking barriers in the financial industry, follow Perth Tolle.
The former private wealth advisor at Fidelity Investments was inspired by her experiences living and working in Beijing and Hong Kong to explore the relationship between freedom and markets.
This led her to creating the Freedom 100 Emerging Markets ETF (FRDM, $33.84) to invest in markets that promote and protect personal and economic freedoms.
The fund starts with an investable universe of 26 emerging market countries. It then evaluates potential constituents for 76 quantitative metrics impacting personal and economic freedoms, such as freedom of religion, an absence of human trafficking and sound monetary policy. This data is provided by the Fraser Institute, Cato Institute and Friedrich Naumann Foundation for Freedom.
The fund's current portfolio is made up of 100 equity holdings, with tech names Taiwan Semiconductor Manufacturing (TSM) and Samsung Electronics currently in the top spots (each accounting for roughly 7% of FRDM's weighting).
Freedom 100 Emerging Markets ETF was named the Best New International/Global Equity ETF for 2019 by ETF.com.
Fidelity Stock Selector Small Cap Fund
- Fund category: Small growth
- Assets under management: $2.1 billion
- Expenses: 1.02%
Led by portfolio manager Morgen Peck, the Fidelity Stock Selector Small Cap Fund's (FDSCX, $35.42) strong portfolio management team and investment process earns it a silver badge from Morningstar. Peck is joined by Eirene Kontopoulos, Shadman Riaz and Patrick Venanzi in managing the fund.
"My investment process centers around investing in small-cap companies that demonstrate above-average quality characteristics trading at reasonable valuations," Peck says. "Over time, this has been the best place to fish for ideas in the small-cap universe to generate outperformance."
However, that outperformance can come at the price of higher volatility.
As Morningstar notes, "the fund has a tendency toward low-quality stocks, companies with higher financial leverage and lower profitability," which could pay off in bull markets.
Keeping the portfolio more diversified than its peers could help mitigate these risks.
Renaissance IPO ETF
- Fund category: Mid-cap growth
- Assets under management: $647.8 million
- Expenses: 0.60%
Ever want to invest in initial public offerings (IPOs) but just don't know how or which one to buy? That's the problem Renaissance Capital is trying to solve for investors. The company's mission statement is to help investors "uncover and profit from initial public offerings."
Many indexes can take years to fully represent new companies, according to Kathleen Smith, co-founder and chairman of the board at Renaissance Capital. Smith also serves as chair of the trust which governs the IPO ETF. For instance, it took the S&P 500 Index almost two years to welcome Facebook (FB) into its ranks.
The Renaissance IPO ETF (IPO, $64.80) is a basket of newly public companies listed in U.S. markets that are not yet fully represented in major benchmark indexes, Smith says. Along with having Smith on the governing board, the fund itself is managed by Tiffany Ng, vice president of Renaissance Capital and co-head of equity research for the company.
IPO gets four stars and a Gold badge from Morningstar. Just be aware that this fund – like any IPO investment – is not for the faint of heart. It can be volatile and is not diversified, with only 72 holdings and 52% of the portfolio in the top 10.
That said, if you can stomach the ups and downs, you're not likely to find a lower cost ETF for IPO investing.
Vanguard Treasury Money Market Fund
- Fund category: Money market taxable
- Assets under management: $36.2 billion
- Expenses: 0.09%
You can even support diversity with your cash-like positions.
The Vanguard taxable money markets division is headed by senior portfolio manager Nafis Smith. He manages funds like the Vanguard Treasury Money Market Fund (VUSXX, $1.00), which, by investing primarily in short-term U.S. Treasury bills, is one of the most conservative investment options available from Vanguard.
"Money market funds play an incredibly important role in client portfolios, particularly those seeking capital preservation for short-term savings needs or emergency reserves," Smith says.
Government money market funds are a great option for short-term savings goals because they can provide a higher interest rate than pure cash with minimal additional risk.