When accessing international equities, investors face an array of concerns. There’s the specter of increased volatility and the possibility of adverse effects from currency fluctuations, to name two.
There’s also the potential for political volatility and corruption harming a country’s financial markets. These are issues that have often plagued developing economies. That is to say ethics, an often overlooked trait, should be considered when accessing ex-U.S. markets. Among exchange traded funds, the Calvert International Responsible Index ETF (CVIE) is a credible option for accessing developed economies that score well in the ethics category.
CVIE, which follows the Calvert International Responsible Index, stands as an environmental, social, and governance (ESG) alternative to basic beta strategies linked to the widely observed MSCI World ex-USA Index. When it comes to exposure to countries that score well in the ethics category, the Calvert ETF stands tall.
CVIE Ethics Credentials
More than a decade ago, Morningstar’s John Rekenthaler penned an article titled “Honesty Did Pay.” The premise was simple. It explored potential correlations between a country’s emphasis on ethics and equity market returns.
Countries that scored well in terms of honesty and ethics offered solid investment returns over long-term time horizons. Denmark led the way, with other examples of ethical nations, ex-U.S., including Canada, France, and Japan. Those three countries combine for more than 36% of CVIE’s geographic exposure.
“It’s possible that these results owe to currency movements rather than to stock behavior. Perhaps the higher-returning countries had powerful currencies, while the laggards were sunk by declining exchange rates,” observed Rekenthaler. “Whether the answer to that question should affect the conclusion is unclear — does it matter whether honesty is associated with rising currencies or rising local equity prices? But the matter nevertheless deserved investigation.”
The U.K., which is CVIE’s second-largest country exposure, at 10.94%, is another example of a market that scores well in terms of perceived ethics. Perhaps not surprisingly, developed markets outscore emerging counterparts on this metric. That highlights benefits with CVIE, because the ETF is heavily tilted toward advanced economies.
“With rare exception — Singapore being the most notable example — emerging markets consistently rank worse on the Corruption Perceptions Index than do developed countries,” added Rekenthaler.
CVIE allocates 4.49% of its weight to Taiwan. This is a country some index providers consider developed and others classify as emerging. Even if it’s in the latter camp, it’s likely to be one of the emerging economies that scores well on ethics and corruption metrics.
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