Fighting Cronyism With The Corruption ETF
Featured in Zero Hedge
Daniel Drew, 6/10/2015
It seems like there's an ETF for everything nowadays. From global warming ETFs to fertilizer ETFs, Wall Street has neatly packaged nearly every type of investment to attract your cash. One thing they forgot to package was corruption. Considering how they are already overflowing in it, perhaps they just took it for granted. However, for many investors, corruption is worth taking a second look.
It all started with a question: Does corruption hurt stock performance? To answer this, I looked at a list of country ETFs. Then I looked at the Corruption Perceptions Index provided by Transparency International. Countries with high rankings have less corruption, and countries with low rankings have higher corruption. I took the countries with a ranking of 80 or higher and placed them in a basket called the "Low Corruption Index." (Note: Neither the U.S. or the U.K. made the cut.) Then I took the countries with a ranking of 40 or lower and placed them in a basket called the "High Corruption Index." I looked at the 5-year returns of these country ETFs. The Low Corruption Index had a return of 43.71% (dividends not included). It was led by Denmark, the least corrupt country, which gained 114%. The High Corruption Index had a return of 8.66% (dividends not included). The biggest drag was Russia, the most corrupt country, with a 34% loss.
A "Corruption ETF" could capitalize on this effect by going long the Low Corruption Index and shorting the High Corruption Index. An investor in the Corruption ETF would be fighting cronyism while making money - one of those rare situations in the stock market where the concept of the "honest dollar" still exists.
High Corruption Index
Low Corruption Index
Corruption Perceptions Heat Map