While investors know the age-old benefits of diversifying, some funds do it better than others. The Nationwide Maximum Diversification U.S. Core Equity ETF (MXDU) is an avenue for adding both variety and protection to a retirement portfolio.
The Maximum Diversification U.S. Core Equity ETF tries to reflect the performance of the TOBAM Maximum Diversification USA Index, a diversified rules-based index of large- and mid-sized U.S. companies that uses a quantitative model to weight companies to maximize the so-called Diversification Ratio of the index. The Diversification Ratio is a proprietary metric based on the volatility of each index constituent and its correlation to other constituents.
Investors could be forgiven to think there was no reason to invest outside of the U.S. for the past decade, given the U.S. markets’ outperformance.
But does that thinking continue? In some ways, yes. Most advisors still put a heavier asset allocation weight on U.S. holdings. But the rest of the world has plenty of, often non-concentrated, growth to offer.
Other Points of Allure with MXDU
At a time when environmental, social, and governance (ESG) investing is gaining considerable momentum, MXDU offers some appeal on that front, too, particularly when it comes to social and governance factors.
The TOBAM Diversification Ratio used by MXDU screens against a socially responsible investment exclusion blacklist to exclude those involved with the production or sale of unconventional weapons, production of tobacco, production of coal or coal-based energy, serious or systematic human rights violations, severe environmental damage, gross corruption, or other particularly serious violation of ethical norms. The index then analyzes the volatility and correlation of each component and weights them to maximize the Diversification Ratio.
Socially responsible investing is more than just a feel-good phenomenon. It can affect credit risk and investment performance.
For example, S&P Global Market Intelligence incorporates the ‘G’ component in an analysis of credit risk. Their proprietary Credit Assessment Scorecards can provide a structured framework for assessing credit risk, generating credit scores that are designed to broadly align with credit ratings from S&P Global Ratings.
The analysis of corporate governance describes how a firm’s rules, practices, and processes can influence its credit profile. For example, independent and diverse boards, along with effective control systems and transparent communication, can help drive operational success and mitigate risks, including those related to fraud and conflicts of interest, according to Marco Sindaco, a director within the Risk Solutions team for S&P Global Market Intelligence Credit Assessment Scorecards in the South of Europe.
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