San Francisco-based Democracy Investments, a newly formed asset manager focused on promoting democracy by influencing capital flows, has launched its first ETF.
The ETF provides global ex-US equity exposure while overweighting companies from robust democracies.
The Democracy International Fund ETF (DMCY US) has been listed on NYSE Arca and comes with an expense ratio of 0.50%.
The fund is linked to the Democracy Investments International Index which tracks a global ex-US equity portfolio that overweights securities from highly democratic countries and reduces exposure to securities from authoritarian states.
The starting universe is the Solactive GBS Global Markets ex-United States Large & Mid Cap USD Index which consists of more than 2,200 securities from 54 developed and emerging countries worldwide excluding the US.
The methodology harnesses the results of The Economist’s Democracy Index which scores countries based on the robustness of their democratic processes. Each country is assigned a score between 0 and 10 based on 60 indicators across five categories: electoral process and pluralism, civil liberties, the functioning of government, political participation, and political culture.
Securities in the index are then reweighted using a combination of their market capitalization and democracy score applicable to the company’s country of domicile. Reconstitution and rebalancing occur on a quarterly basis.
Julie Cane, CEO of Democracy Investments, said: “DMCY is designed to empower investors to invest in the future of democracies, instead of passively investing in authoritarian states with political risk, environmental challenges, and human rights abuses. Democracy is declining globally, but we hope the potential success of this ETF will reverse that trend and fuel a movement to lower the cost of capital for democratic countries and improve their economic growth.”
Richard Rikoski, Chief Economist at Democracy Investment, added: “The power of the Index is it makes investments proportional to democracy scores and never drops investment in a nation to zero. We hope this creates market-based incentives for democratic reforms.”