Detailing the Gender Divide in Stocks

 | Jan 16, 2014 | 3:30 PM EST  | Comments
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Stock quotes in this article:

XHS

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fxh

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fxh

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XLV

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slm

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dfs

On Tuesday, I wrote about stocks of companies that cater to women, and on Wednesday, I wrote about companies that cater to men. Today I will compare and contrast the performance of each group and discuss what the potential secular trajectories for each group may be.

First, I'll list each of the women's stocks and their five-year and two-year nominal returns, not including dividends, and follow that list with the men's stocks. The five-year mark approximates the official end of the last recession and the bottoming of the markets after the 2008 crisis. The two-year mark is generally agreed to as the end of the fall in housing prices and activity. 

The first observation is that although the five-year returns are somewhat similar, the two-year returns are not. The men's stocks show continuation of a steadier exponential rate of appreciation over both periods of time, while the women's stocks have shown a deceleration or negative return over the two-year vs. five-year rate.   

The collective price-to-earnings ratios and dividend yields are similar for both groups, at about 20x and 1% to 1.5% respectively. 

One of the troubling aspects of this is that stable home prices are typically a prerequisite for job growth, household formations and an increasing share of income being allocated toward family, and that also means that income is moved away from male-oriented consumption.

Another troubling aspect is that since the last recession officially ended in June 2009, employment by women of all ages has rebounded to the level that had prevailed before the housing bubble began to collapse in 2007, while employment for men, although also rising, is lagging women's employment.

More importantly however, as Matt Yglesias at Slate recently observed, is that the employment in the critically important demographic for both men and women, the 25-54 age group, has not rebounded.

This segment of the market is where most consumption comes from, most importantly from home buyers. Home buying is considered by economists to be the ultimate expression of financial confidence, because it usually requires taking on long-term debt to finance.

It's also typically the catalyst for household formations, marriages, child rearing and the requisite allocation of income away from male-oriented consumption and toward women, children and family.

Since the last recession ended, though, this has not yet happened. Instead, job creation, home buying, household formations, marriages and child rearing are still decreasing.

This may reverse soon, but it also may not.

Japan has been facing a similar situation and trajectory for the past generation, since the financial markets and economy began to decline in the early 1990s. The pattern of falling household formations there has taken a tragic and potentially catastrophic turn for Japan's society. Many men show an increased unwillingness to pair up with women and to raise children, and some even have little interest in sex.

Nobody is quite sure why this is happening, but it may simply be a collective social coping mechanism by men who have given up on the prospects of being able to attain the economic and financial condition that would allow them to take on the responsibility of a spouse, children and house.

Although this pattern is not yet indicated in the U.S., investors should be watchful for it.

In the U.S., the pattern appears to be temporary, although it still has immediate prospects for continuing. Men seemingly decide that if they can't afford a house, wife and children, they can at least afford to indulge their personal desires by buying a new car or spending money on other typically male pursuits, but still with the goal of partnering up later.

This should be positive for the financial prospects of companies that cater to men and for their stock prices.

The issue with respect to women is a bit more complicated and longer term. Although the immediate prospects for women's employment and income viability are stronger than the prospects for men, the parts of the economy where women's employment has historically come from -- education, healthcare and government -- appear to have already peaked and are set to decline.

Although this narrative is still not widely discussed by the financial media, investors may be indicating their concerns by beginning to allocate investment capital away from companies that have a predominantly female consumer base.

At the very least, investors would be prudent to begin to track the performance of student loans, municipal bonds and the stocks of companies in the healthcare services segment.

For the healthcare sector, the easiest way to track these stocks is through the exchange-traded funds: the SPDR S&P Health Care Services ETF (XHS), the First Trust Health Care AlphaDEX (FXH) and the Health Care Select Sector SPDR (XLV).

For student loans, you can follow SLM (SLM) and Discover Financial Services (DFS). In 2010, Discover absorbed the Student Loan Corporation, which had previously traded as SLU. 

For a broad national snapshot of the municipal bond market, you can follow the iShares National AMT-Free Muni Bond (MUB). 

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