A behavioural finance lens on the question: Are women really better investors?

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Not only did they find a statistically significant difference in favour of women, but they also found that men had better investment performance in the mere presence of women. However, single men under-performed significantly more. It doesn’t stop there.

Forbes reported in 2023 that female hedge-fund managers have the edge over their male counterparts. The reasons for both of the above findings were in principle attributed to overconfidence and excessive trading in portfolios, i.e. making more decisions and as a result, under-performing.

Momentum Investments has been studying investment behaviour in various contexts since the onset of the Covid-19 pandemic and has established a metric that tracks the value eroded from investment decisions. We call it a ‘behaviour tax’. We’ve also established machine learning techniques that study behavioural patterns and how these patterns impact the behaviour tax of the investor population.

We decided to put these claims to the test in South Africa using these metrics (and some others).

When examining investors in unit trusts (the Momentum Flexible Investment Option) from 2020 until the end of 2023, the following interesting results emerged:

• The switch itch: The average number of switches (disinvesting from one unit trust and investing in another) by males is two per year. Females switch 5% less than their male counterparts.
• Overconfidence: The trend of chasing past performance when markets show signs of recovery is still very prominent. Here the over-confidence of males is equally prominent. We measure the overall extent to which males and females up-risk and de-risk their portfolios by tracking their asset allocation over time. This is the mix of stocks, property, bonds and cash (both local and offshore) that they hold in their portfolios.

  When males hit the accelerator during market performance, they hit it much harder. Their portfolios contain more risky asset classes during these periods (stocks and property) than their female counterparts. This is confirmed by a larger portion of males in the “Assertive” investor archetype that consistently up-risks their portfolio.

• The behaviour tax: Since the onset of the Pandemic, the behaviour tax has plagued South African investors. This means that when performing a switch from one unit trust to another, investors in general are destroying value. Since Covid, males have experienced an average behaviour tax of a staggering 4% per year. Females, however, experienced a behaviour tax that was 20% lower than males.

Finally, we put this question to bed by examining which group experienced better investment returns. We included the entire population, both switchers and non-switchers (people who stayed invested). The net result is that females tend to outperform their male counterparts by nearly 30 basis points or 0.3%, which is a similar result to global studies on this topic.

The answer as to whether females are better investors appears to be a resounding ‘yes’. It should be noted, however, that markets have provided a distinct return pattern in the past number of years that likely didn’t reward overconfidence. The debate will likely continue, but the fairer sex has definitely won this round.