In many markets around the world, corruption is a huge issue. Often times it can also turn into a sort-of cost of doing business in many nations, dragging down productivity and hampering investment in a particular area.
Investors often try to avoid these corrupt nations as it is always difficult to keep officials accountable, honest, and consistent when an environment of corruption exists. High levels of corruption also appear to be heavily correlated to basket-case economies, while on the other side of the spectrum, those that have the least corruption are often times many of the best countries to both live and work in as well.
For investors looking for the least-corrupt in an increasingly shaky world, a look to Transparency International’s annual corruption perceptions index could be the way to go. This benchmark ranks each country based on the perceived level of corruption within a given nation, giving us a good ranking of nations by this metric (see 4 Best New ETFs of 2012).
While some typical choices occupy the bottom—such as Somalia, North Korea, and Afghanistan—you may be surprised who is at the top of the list. The U.S. barely squeaks into the top 20 overall at #19, while a host of smaller European and Asia Pacific developed nations dominate the top ten instead.
For investors looking for the least corrupt nations on Earth, and thus potentially interesting investments that have low political and regulatory risks, any of these smaller markets could be great picks. Fortunately with the rise of the ETF industry, these tiny nations can easily be accessed in an exchange-traded way giving broad exposure to these efficiently run nations.
Below, we highlight a few ETFs that target the least corrupt nations on Earth. This year, there was a tie for first place, so any of the three will be zeroing in on a nation that is ranked the best from TI’s corruption perception index score:
Finland, a small nation in Northern Europe, is not only one of the richest nations in the world but it is also one of the least corrupt. The country can be accessed in ETF form with the iShares MSCI Finland Capped Investable Market Index Fund (:EFNL).
This ETF holds about 43 stocks in its basket, and has a double digit allocation to all of the top three, suggesting a modest concentration. Expenses are modest at 53 basis points a year, but bid ask spreads are wide so total costs could be much higher (read Three European ETFs with Incredible 2012 Gains).
Industrials take the top spot in the fund at 30%, followed by financials, materials, and tech which all have at least 13% of assets as well. For performance, the yield is robust at about 4.7%, while it has added about 29.4% in the trailing six month period.
Denmark is another small European nation that is relatively homogonous and rich. The country is probably one of the least famous in the region from an investment perspective, but it can easily be accessed with the MSCI Denmark Capped Investable Market Index Fund (:EDEN).
This product has 37 stocks in its basket, and like EFNL, charges investors 53 basis points a year. It also has some concentration issues—Novo Nordisk takes up 22% of assets—but beyond that it does a decent job of spreading assets around (see Three Resilient European ETFs Still Going Strong).
Health care and industrials dominate from a sector perspective, accounting for over 50% of the total assets in the ETF. Investors should note though, that yield is below 1.2% while volume is quite light, suggesting that limit orders will definitely be necessary for this ETF which has added about 22.8% in the last six month period.
On the other side of the globe, the Kiwis have taken a more free market approach but have managed to keep corruption perceptions down to a minimum as well. While a few Asia Pacific ETFs have assets in New Zealand, arguably the purest exposure is in the MSCI New Zealand Investable Market Index Fund (ENZL).
The ETF holds just 22 securities in its basket, but manages to beat out the others on a cost front, charging just 51 basis points a year. Fletcher Building and Telecom of New Zealand make up about 33% of the total, but beyond that the fund is pretty well spread out (read The Five Minute Guide to New Zealand ETF Investing).
Three segments receive at least 15% of assets—one at 14.7% as well—well another four are right on the cusp of 10% suggesting a well diversified portfolio from a sector look. Volume is pretty good in this reasonably popular ETF as well, so it could be a cheaper way to target low levels of corruption. It also doesn’t hurt that the ETF pays out a 4.4% yield while it has added about 19.8% in the trailing six month period.
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