When it comes to environmental, social, and governance (ESG), professional and retail investors alike are demanding more on the social and governance fronts.
That stands to reason, because the “E” gets plenty of attention by way of climate change and net-zero efforts. Fortunately, there is growing commitment to socially-related investments, and that could have implications for exchange traded funds such as the Calvert US Large-Cap Diversity, Equity and Inclusion Index ETF (NYSE Arca: CDEI).
As its name implies, CDEI focuses on the intersection of investing and diversity, equity, and inclusion (DEI) efforts. Chances are investors are hearing more and more about DEI in the current environment, but not much about its investment implications. That’s not surprising because most media treatment of DEI is in the context of broader societal implications — not how market participants can capitalize on it.
Still, data indicates some investors are pondering how companies’ DEI efforts impact returns. A 2022 panel conducted by MIT’s Sloan School of Management addressed that topic, among others related to DEI.
“Just over 31% of panelists agree or strongly agree that corporate investments in DEI should be expected to have a financial return on investment. It’s important to note, however, that the consensus among this group of panelists is that there are many reasons companies should be motivated to invest in DEI — among them, morality and fairness,” according to the school’s Management Review publication.
That could be a sign that CDEI, which debuted in January, is a well-timed addition to the ESG ETF fray. After all, investors want DEI solutions and Corporate America is making this a point of emphasis, so much so that $50 billion was contributed to DEI efforts in 2020 alone.
“Across the globe, many companies have recognized that building diverse, equitable, and inclusive workforces is a necessity in the 21st century,” added MIT. “Budgets for diversity, equity, and inclusion initiatives increased across industries, and many companies have scrambled to hire new roles focused on integrating DEI efforts within the business.”
CDEI follows the Calvert US Large-Cap Diversity Research Index and screens companies based on acumen in managing DEI issues. With that focus, CDEI can sport overweight and underweight sector allocations relative to pure beta broad market ETFs.
Said another way, with DEI being a relatively new focus in Corporate America, it stands to reason some industries are mastering it more rapidly than others. On that note, CDEI allocates about 52.7% of its weight to tech and healthcare stocks while materials and real estate are at the bottom, combining for just 1.84%.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.