Research Affiliates has launched the RAFI Diversity & Governance strategy which integrates gender-diversity metrics with empirically robust return drivers that are linked to good governance and financial discipline.
It is designed for investors who seek to embrace the benefits of diversity while preserving the potential for long-horizon outperformance. The strategy is built using the Fundamental Index approach, which has historically been shown to deliver outperformance versus a cap-weighted benchmark.
“At Research Affiliates, cognitive diversity has long been a driving force behind our research agenda and management practices,” says Katy Sherrerd, PhD, CFA, President and Chief Executive Officer, Research Affiliates. “We believe this focus creates an environment that promotes collective intelligence and ultimately strengthens the foundation of our firm. Thoughtfully designed investment products that can improve performance and/or reduce risk, while delivering on socially conscious and sustainable investing, are a natural outcome of this focus.”
RAFI Diversity & Governance uses the proprietary gender leadership diversity methodology developed by LeaderXXchange, a change-driven organisation that advises and promotes diversity and sustainability in governance, leadership, and investment. The methodology uses public data that companies disclose as well as proprietary databases from Paris-based environmental, social, and governance data provider Vigeo Eiris.
“Studies show that companies with greater percentages of women in leadership have the potential to improve financial performance. When women are underrepresented in leadership, the company can be less equipped to handle business challenges, understand customer needs, and approach problems from a different perspective,” explains Sophie L’Helias, President, LeaderXXchange. “Our gender-diversity metrics attempt to address this by focusing on a company’s commitment to promoting women and its results throughout the corporate leadership pipeline in management, the C-suite, and the company’s board.”
Michael Notat, Executive Director International Markets, at Vigeo Eiris, says: “Gender diversity metrics and good governance are fundamentally linked. We are very proud to have been selected as the ESG data provider for the new RAFI Diversity & Governance strategy. It offers a unique and holistic approach that combines qualitative and quantitative performance to the investment community.”
Research Affiliates is partnering with BNP Paribas, a leader in impact and sustainable investing, to globally market, distribute, and support the implementation of the strategy. BNP is an exclusive provider of structured products linked to the RAFI Diversity & Governance indices, and serves as a counterparty for OTC swaps.
“BNP Paribas is a global company that understands it plays a key role in corporate social responsibility around diversity, gender equality, and the environment. As we help build a sustainable future, while promoting the bank’s performance and commercial offerings, we are proud of our deep partnership with Research Affiliates, an organisation highly respected throughout the investment industry for its smart beta offerings and persistent innovations in the investment space,” says Josh Dunivant, Head of Delta One Sales Americas, BNP Paribas.
“Through the RAFI Diversity & Governance indices, BNP Paribas will continue to provide Research Affiliates with the bank’s expertise in environmental, social, and governance investment solutions that enable clients to positively impact society and receive the desired level of performance for the risk taken,” adds Alexandre Billot, Director of EQD Solutions, BNP Paribas.
Sherrerd says: “Research shows that diverse teams who embrace collective intelligence make better decisions and are more innovative. Validating this finding in investment returns is handicapped by the lack of data. For RAFI Diversity & Governance, we combine diversity with other measures, particularly financial discipline, to create a better proxy for sound management practices, robust corporate governance, and a healthy company culture.”
Indices based on the RAFI Diversity & Governance strategy will be constructed, published, and licensed through RAFI Indices, LLC, a sister company of Research Affiliates.