Workplace Equality Index 2016 Attribution Commentary

Monday, January 23rd, 2017

In 2016, the Workplace Equality Index® returned 15.80%, once again outperforming the S&P 500® Index return of 11.96%. The vast majority of the outperformance came from stock selection, rather than sector allocation. This is important for investors as it reinforces our belief that companies that treat all of their employees equally enjoy better stock returns than their less enlightened peers.

This year our equal-weight approach added value, as many of the previous years’ large stock winners, such as Apple, Alphabet (Google), and Johnson & Johnson, didn’t have as much impact on performance as in past years. Small- and mid-cap stocks, which comprise 22% of the index, contributed an outsized amount to return this year.  Smaller stocks such as Sprint (0.43% of our index, not in the S&P 500® Index), NVIDIA (0.54% of our index, 0.17% of the S&P 500 Index®), and Wynn Resorts (0.33% of our index, 0.02% of the S&P 500® Index) were all among our top performers.

The best contribution to return came from DuPont spin-off Chemours (317%), NVIDIA (217%), Sprint (133%), Cummins (58%), and Virgin America (58%). The worst performing stocks in the index this year were Sears Holding (-55%), Credit Suisse (-31%), Abercrombie & Fitch (-54%), Nokia (-29%), and SUPERVALU (-31%). Many of our foreign banks suffered this year, as did select retailers.

The Workplace Equality Index has very divergent sector weightings in comparison to the benchmark S&P 500® Index due to our selection methodology. The adoption of LGBT inclusive workplace policies has been widespread in some sectors while others have not embraced a diverse workforce with as much enthusiasm.  Although some of the best performing sectors in the S&P 500® Index were those where we are considerably underweight (Energy and Materials), stock selection across the entire index made up the difference, and then some. The best relative performance came from the health care sector where we were underweight the benchmark, but our stocks returned 2.90% versus the -2.40% return for the healthcare stocks in the S&P 500® Index. Technology was similar where our weight was 17.1% versus 20.6% for the benchmark, but our technology stocks returned 20.83% versus 13.80% for the S&P 500® Index.

Of the 384 basis points of outperformance generated by the Workplace Equality Index® in 2016, 342 basis points came from stock selection and only 42 basis points came from sector weighting. Across all 11 GICS sectors, our average performance was 4.1% over the corresponding sectors in the S&P500® Index. This stock-specific outperformance is driven by what we call Return on Equality, or the Real ROE. Download the white paper, Return on Equality, the Real ROE – The Shareholder Case for LGBT Equality to learn more.

Identifying companies that treat their LGBT employees with equality, dignity and respect uncovers companies that treat all of their employees well. We believe that companies that value all of their employees benefit from a Return on Equality, whereas their less-enlightened competitors will not have as dedicated and hardworking workforces, which ultimately will show up in stock performance over long time periods.