Nucleus adds diversity screens

The wealth manager has added diversity as an ethical exclusion as race and gender disparities leap to the forefront of investors’ minds.

Nucleus adds diversity screens

Lachlan Maddock

Last Updated: 14 October 2020 Published: 27 July 2020

Nucleus Wealth has added a diversity exclusion as Black Lives Matter protests and a high-profile harassment case at AMP Capital focus investor attention on race and gender disparities in company boards and management teams.

“In an investment climate where diversity, specifically gender and race, are front of mind issues in the community generally two questions are suddenly more prominent,” said Damien Klassen, head of Nucleus Wealth. “Does diversity improve financial performance? And, how can I, as an individual investor, express a preference for companies with diverse boards and management?”

Nucleus has seen an increase in clients concerned about lack of diversity on boards. Mr Klassen believes that while corporate governance is a factor that outperforms, diversity is a good but “far from infallible” indicator of more innovative companies.

“On the positive side, group diversity increases networks, resources, creativity, and, importantly, innovation,” Mr Klassen said. “On the negative side, more diversity can lead to less communication, increase group conflict, lower satisfaction and increased staff turnover.”

Nucleus uses governance scores a negative screen rather than a positive one, meaning bad governance can make a quality score worse and the company needs to be cheaper before Nucleus buys it.

“But we are not choosing to buy a company with 42% gender diversity over the one with 39% on that measure alone,” Mr Klassen said. “Many of the governance scores are like that – there is a definite ‘bad’ option, but we believe there is little sense trying to rate the difference between two good options.”