There are too few women in boardrooms and executive roles, we know that. The “pale, male and stale” culture at the top level of listed companies is as old as time. But things are starting to change.
Businesses are under greater pressure to ensure diversity within their organisation (not just on a gender basis either, though that is our focus for today), and to be more transparent about it too. The latter part is particularly exciting for the Morningstar data bods because we finally have enough disclosure in the UK, US and Canada that we can start to really dig into the numbers. Just as sustainably-minded investors want to know if strong ESG credentials mean strong financial returns, we also want to know this: does better diversity on company boards lead to better performance?
The jury is still out on that one for now, unfortunately. Our initial findings suggest that a more equal proportion of men and women in executive roles does bring greater financial gains, but there are not enough stocks in some categories for us to get a real insight just yet. No matter, things are moving in the right direction.
Just a few years ago, the idea that we would be able to measure this through the Morningstar database would have been way beyond reach, now it is steadily trickling through as companies start to wise up to the importance of reporting on this stuff. Maybe one day soon we’ll get data on racial diversity, gender pay gaps, and paternity leave allowances. This feels like a turning point.
Solid and Reliable Holdings
When we look at stocks, a lot of the attention goes on the cheapest and the most expensive, those rated 1 or 5 stars respectively by Morningstar analysts. But actually, relatively few stocks fall into these extreme ends of the scale. Far more common are 3 star stocks, which Morningstar analysts deem to be trading at a share price in line with the company’s fair value.
Morningstar’s ratings aren’t a “buy”, “hold” or “sell” recommendation system, but they are a tool that investors can use to scope out stocks with plenty of growth potential and to weed out those looking a bit toppy. The 3 star rating, then, shows those Goldilocks stocks which are “just right”. But what do investors do about a 3 star rating?
If a stock is trading at its fair value, you might think there’s no point holding it – it’s unlikely to double your money any time soon, after all. But it would be wrong to discount a stock on that basis. Remember, a company’s fair value is not a static number, it keeps moving, and with a good company it will likely keep moving upward.
Yes, picking out undervalued, hidden gems that can deliver bumper returns is the investment dream – but this is incredibly difficult to do. It’s great to have big wins in your investment portfolio, but what’s more important – and more achievable – is having a solid core of reliable holdings that will keep on delivering no matter what. There's nothing wrong with buying something for its fair value - that's what we aim for with most purchases in life. The one thing you really don’t want to do is overpay for a stock.
Do You Speak Crypto?
Our resident crypto expert, Amy Arnott, had a big task ahead of her when she decided to put together a glossary of common cryptocurrency terms this week. Reading through, it’s strange to think that many of these now everyday words didn’t even exist a few years ago.
From Blockchain to Ether via hot and cold storage, there’s a whole language to get your head around before you even delve into digital currencies. The investment world is already littered with jargon – it’s a major bugbear of mine – and the crypto world is no different.
There are plenty of investors starting to give proper thought to whether crypto deserves a place in their portfolio. But you can't answer that question if you don't speak the lingo. If you don’t know your Dogecoin from your DeFi, it’s worth going through your crypto dictionary before you dive in.
