Lloyd Miller

Call it the XX factor for investing.

It is an intriguing concept: investing in stocks of companies with female leadership. Backed by studies that say such companies perform better, fund companies are stepping in with investments that snub male-dominated companies, and bet on women.

The question for investors: Will these new vehicles be sound investments—for women and men—or merely the latest specialized-funds gimmick?

PODCAST: Daisy Maxey tells WSJ's Mathew Passy about mutual funds that have a strong focus on companies with women in leadership roles.

Barclays BARC.LN +1.03% PLC in July launched a Barclays Women in Leadership Total Return Index and related exchange-traded notes, Barclays Women in Leadership ETNWIL -1.38% The index is made up of U.S. companies with a female chief executive or at least a 25% female board. The notes, trading on NYSE Arca, have generally traded just above issue price.

"Everyone is talking about women in leadership," says Barbara Byrne, vice chairman in investment banking at Barclays. The London bank has 80-plus ETNs, so the notes were the logical framework, and its research shows market demand, she says.

Leaning In

Barclays isn't the only firm leaning in. Ellevate Asset Management LLC, owned by Sallie Krawcheck, former high-profile executive at Bank of America Corp. BAC +0.47% , teamed with Pax World Management LLC in June to launch Pax Ellevate Global Women's Index Fund. It invests in companies that seek to advance women. The fund is the successor to Pax World Global Women's Equality Fund, which was merged into it.


Bank of America's U.S. Trust unit and Morgan Stanley MS -2.29% Wealth Management last year each introduced customized portfolios that screen companies for investment potential based on a gender lens.

Research from multiple sources shows that companies with more women on their boards have stronger finances, says Eve Ellis of Matterhorn Group at Morgan Stanley, who co-manages its parity portfolio strategy. She cites data from Catalyst Inc., a nonprofit focused on increasing opportunities for women in business, that show that from 2004 to 2008, Fortune 500 firms with three or more female directors had an 84% better return on sales and a 46% better return on equity. Matterhorn Group cites studies by several universities and consulting companies as well that see a correlation between strong financials and women in leadership roles.

Sallie Krawcheck Bloomberg News

There are caveats to ETNs (which are unsecured debt) and to women-focused investing strategies. Female leaders are often appointed in times of poor company performance, so their posts may be precarious, say Michelle Ryan and Alex Haslam, professors at the University of Exeter in the U.K. That "glass cliff" could make such companies less attractive to investors, the researchers say.

Some observers caution, too, that the presence of more female directors is not necessarily the cause of business success, but could instead be a consequence.

The Barclays index, for its part, currently holds 85 companies, 36 of which have female CEOs, including International Business Machines IBM -1.31% and PepsiCo.PEP +0.01% Other holdings include AT&T-0.73% Google GOOGL -1.03% andVerizonVZ -1.17%

The women-focused funds come at a time of increasing interest in socially responsible investing generally. Robert Goldsborough, a fund analyst at investment-research firmMorningstar Inc., MORN +0.65% says, "Over time, these kinds of screens typically produce performance that's on par with the market; typically not better, but not worse."

Fee Structure

Investors pay for the privilege. The Barclays ETN charges an annual fee of 0.45% compared with a 0.10% fee for the SPDR S&P 500 ETFSPY5.LN +0.10% Morningstar is generally not a fan of ETNs, says Mr. Goldsborough, citing credit risks and fees that can be hard for investors to understand.

Dave Nadig, chief investment officer at ETF.com, says no one expects the Barclays ETN to be "the next great Warren Buffett strategy," but adds: "The index is constructed well," and he wouldn't expect it to trail a traditional, broad index.

By the way, even if Barclays were a U.S. company, it isn't eligible for its own index. Of its 14 directors, just three are women.

"We're aspirational," says Ms. Byrne. "We intend to qualify."

Ms. Maxey is a special writer for The Wall Street Journal in New York. Email her atdaisy.maxey@wsj.com.