fennewaldaj wrote: ↑
Mon Jan 14, 2019 2:25 am
SoonerD wrote: ↑
Mon Jan 14, 2019 12:32 am
Do the E.M. Index Funds typically include the countries run by dictators? Let's exclude the almost dictatorish run countries like China. Do the EM Index funds include countries with dictatorships and if so is it any meaningful percentage of the fund.
My guess is an E.M. fund that is say 5-10% of one's portfolio would have less than 0.5% total portfolio exposure to dictators. For the record, I don't invest in E.M.
I think maybe they are being a bit loose with the term and considering the leaders of China and Russia as dictators. Though I do think the general point is valid. It is perfectly reasonable to not want to invest in countries if you find the leaders abhorrent (assuming you know enough to make that judgement). I don't invest like this but it seems perfectly reasonable. It is actually almost surprising there is not an ESG style fund that only invest in democratic Emerging Markets.
I’m not sure if there’s a bright line that one crosses over and then one reaches official “dictator” status. I think it’s a case of you know it when you see it. As another poster alluded to, there’s also the issue of not wanting to invest in countries that have official or unofficial political beliefs and ingrained cultural beliefs that are traditionally considered as working against free enterprise, self determination, capitalism etc. I think it’s a judgment call, and lies on a continuum where no country (incl. US) is above the fray.
Does this position cost me diversification? Obviously. But it’s a bet, a gamble, an example of “active management,” a tilt, or whatever you want to call it away from a supposedly omniscient market-weighting that I’ve chosen to take. I think it has a logical foundation.
Is it an optimum position? No, probably not. I never said it was. I never claimed to know more than the market, though some might interpret my position otherwise.
Here’s the real issue: I do have a memory. And I do take note when a political system doesn’t appear to be working for free enterprise, individual liberty, capitalism, etc. There seems to be a real push lately for American dollars to flow to foreign countries and their equities for no other reason than “they’re different!” and that’s supposedly always good for your portfolio risk. I understand that things ebb and flow, and that countries change.* That said, we’ve been in hot or cold conflict with one or more of these countries, and especially some of their political systems, on more than one occasion.
The market seems to have an extremely short memory for this. It appears to be nearly ahistorical sometimes. It also appears to turn a blind eye to current events. Is China making money? Tons of it. But I’m not a believer in making money above all else, with whomever I can. China is run by communists. The same communism we’ve fought for awhile. And I’m not just picking on China. There are many other countries that I can’t invest in either. To the extent that participants in a secondary market support the existence of a primary market, and therefore the economy of a country to that extent, I think consideration of the tertiary consequences of such investing is, at least, warranted.
I’m taking a risk by being 100% US equities. I’m aware that we might Japan it for the rest of my life. I’m aware that international might outperform starting today and that I’ll be missing out for the rest of my investing horizon. I’ve accepted these consequences. I certainly don’t blame anyone for investing internationally.** It’s a big world, and I could very much be wrong. I hope I am actually; for international outperformance would probably mean that freer markets and development are occurring, which can lead to a better life for the populations in those countries.
* Of course, the US is not above this either. However, I live here. I have a say to an extent about what goes on here. I can keep tabs about what’s going on here much better than, say, India. And I don’t have a voice in India.
** I have recommended Wellington to others for example, which has of course about 10%+ international in its equities side. In fact my parents and I hold it in a joint account.