Meredith Jones is an alternative investment consultant and author of Women of The Street: Why Female Money Managers Generate Higher Returns (And How You Can Too).
In this interview, Meredith discusses her research in alternative investments, pointing to significant outperformance of women investors, both retail and professional. Her 2013 study for Rothstein Kass (now KPMG) showed women had a +6 percentage point differential over a 6.5 year period. She also discusses about other studies that have been done on thousands of brokerage accounts and millions of IRA accounts, among others, both of which also demonstrated significant outperformance from female investors, as additional evidence of what she calls “cognitive and behavioral alpha.”
What explains the outperformance?
These Are John Buckingham’s Stock Picks For 2021
The economy remains in distress, although there are signs of recovery underway. John Buckingham of Kovitz, editor of The Prudent Speculator newsletter, has found that value stocks typically outperform coming out of economic downturns. Thus, he argues that this is an excellent time to be a value investor. Q4 2020 hedge fund letters, conferences and Read More
According to Meredith, biological factors such as hormones (specifically cortisol and testosterone) and brain structure can impact stress levels and risk taking. In combination with cognitive components like probability weighting, matching expected outcomes with actual outcomes, and confidence levels, these biological and cognitive differences lead to identifiable behavioral patterns that can create higher returns. For example, women investors are generally more likely to trade less, sell into a market drawdown, or follow the investment herd.
In addition, she says that investors are beginning to look for a more diverse group of money managers and that there is a growing recognition of diversification and return generation benefits within women (and minority) run funds.
While alpha has been traditionally viewed as a result of specific strategies/sectors, investing skill, or unfortunately pure dumb luck, investors too often ignore the alpha that can be generated the behavior of their money manager. Like it or not, behavior impacts every investor. Whether it’s individual trading proclivities, an external money manager’s biases, or macro-economic behavioral forces, Meredith argues it’s time to consider how investor behavior impacts returns and portfolio diversification, and we should act to achieve a more behaviorally-balanced portfolio.
Learn more about: How many female run hedge funds actually exist? Do female professional investors outperform, and what can retail investor studies contribute to the discussion? Biological, cerebral, cognitive, and behavioral elements of female money managers in comparison to men. Overconfidence and overtrading studies have proven to be a disadvantage to male investors. Why Wall Street largely ignores women managers, which should change with the realization that a sustainable profit advantage is at stake. On Wall Street, only 5% of professionals taking risk are women. Among hedge funds, there is an 80 to 1 male to female ratio. Using diversification of behavior in selecting managers can help allocators potentially capture significant alpha and minimize volatility.
Meredith began her alternative investment career at Van Hedge Fund Advisors International (VAN), where she was Director of Research. At VAN, Meredith was responsible for manager selection, due diligence, index construction and aggregate industry research for the $500 million fund of funds.
Meredith was then recruited by hedge fund analytics provider PerTrac Financial Solutions. There she focused on industry trends with an eye to providing actionable insights and information. Her research on emerging managers, initiated in 2006, and women and minority-owned funds created new investment categories. It has changed the way investors and money managers behave – both in the way investors allocate and how money managers market to and seek investors.
Meredith then went on to be Director at Barclays Capital Strategic Consulting Group. There she consulted for clients and authored white papers, including her first white paper on women and minority-owned investing.
Until the acquisition of Rothstein Kass by KPMG, Meredith served as Director of the Rothstein Kass Institute, an Alternative Investment Think Tank at the professional services firm Rothstein Kass (RKCO). There she created the first Women in Alternative Investments Hedge Fund Index to measure performance of female hedge fund and private equity managers.