How to Invest Internationally with an SRI or ESG Mandate

March 2015

While many investment offerings can claim to be aligned with an SRI or ESG framework, it is difficult to find investments that incorporate the three best Responsible Investing practices: (1) positive screening, (2) emphasis on corporate governance, and (3) actively rewarding improvements.

A Country Selection Technique, pioneered by Magni Global Asset Management, can be used to build international equity portfolios. It converts scores arising from researching each country on its adherence to the Sustainable Wealth Creation principles into weightings used to build portfolios. This technique incorporates all three best practices:

  1. The Country Selection Technique uses positive screening for adherence to the Sustainable Wealth Creation principles.
  2. Sustainable Wealth Creation principles are built on well-accepted economic principles that measure corporate governance and the country-level infrastructure to support good corporate governance.
  3. Country-level improvements are rewarded through continued country research and systematic monthly rebalancing.

A model built on the Country Selection Technique has consistently demonstrated significant outperformance across portfolios when compared to their MSCI benchmarks for more than a decade (for more information and disclosures, please see https://www.magniglobal.com/performance-data/).

The Country Selection Technique can be used to build portfolios with multiple types of country-level securities. Typically, a portfolio is constructed using individual country-level ETFs replicating the respective target country’s overall equity exposures with allocation decisions based on the Country Selection Technique. Alternatively, country-level funds other than market-cap weighting could be used. For example, the funds could be composed of individual companies identified as supporting ESG principles. In such a portfolio, the Country Selection Technique becomes an overlay where the countries represented in the portfolio are weighted based on their adherence to Sustainable Wealth Creation principles.

The combination of company and country criteria within a Responsible Investing portfolio is truly powerful. The large and growing base of responsible investors could both align their investments with their values and position themselves for attractive returns.

Looking for more perspective on sustainable investing? Download our whitepaper:  “Country Selection – An Important Addition to Responsible Investing.” Follow Magni Global Asset Management on LinkedIn and Twitter @MagniGlobal, #CountriesMatter.

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