Spinning the Globe

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Ciao,

This week’s newsletter is brought to you by the letter C. The Consumer Price Index (CPI), crypto, and climate pledges have all been making headlines this week, and we’ve got the highlights to catch you up.

The big economic news of the week came when the Labor Department revealed that consumer prices rose 6.4% in January from a year earlier, continuing a downward trend from the peak inflation rates we saw last summer. But, compared with December, prices increased .5%, indicating that price pressures haven’t eased that much, as you’ve likely seen if you pay rent, drive a car, or buy groceries (and we’re assuming most of our readers fall into at least one of those buckets). With consumers facing a relentlessly rising cost of living (and unemployment remaining historically low, according to numbers released today), experts predict the Fed’s rate hikes will continue.

While the Fed continues its fight against inflation, the SEC is attempting to rein in cryptocurrency markets. The “crypto crackdown” intensified over the last week as US regulators took a flurry of actions against digital currency companies. While Bitcoin and crypto stocks have been rising this week, experts and regulators continue to warn investors should proceed with caution. If you own crypto, NerdWallet has some tips on how to navigate the current market (and our previous article on how to avoid the FTXs of the future might be helpful too).

Also drawing scrutiny: climate pledges. A new report from Carbon Market Watch and the NewClimate Institute finds that so-called net-zero pledges made by some of the world’s largest corporations will reduce their greenhouse gas emissions by just 36% — far short of what’s needed to avert the worst climate change scenarios. It’s a good reminder to understand how to spot greenwashing and the ways it impacts your investments.

If you haven’t had enough of the letter C yet, below we take a deep dive into cross-border investing (ok, that was a stretch, hehe), highlighting ways you can diversify your portfolio geographically.

Asking for a friend….

We know there is a lot to think about these days, and it can sometimes be a bit overwhelming. To help with those nagging questions and so you have useful resources at your fingertips, here are few links to resources and past stories relevant in these turbulent times:

• Some of our favorite inflation-fighting strategies (and a few more)
• Unpacking the ESG Alphabet Soup (including a link to our ever-growing glossary of common terms)
• FWIW Guide to Cleantech Investing: Sectors to Watch (covering a dozen innovative sectors to anchor your research on sustainable investing options)
• How to Practice Faith-Based Investing
• “Siri, What Is a Recession?”

And as we continue to celebrate Black History Month, we’ve been inspired and in awe of the stories told about communities that are often overlooked at another resource: 2892 Miles to Go.

News you can use

• Ford is investing $3.5 billion to build a lithium iron phosphate (LFP) battery plant in Marshall, Michigan. The automaker says making this lower-cost battery, which doesn’t require critical minerals like nickel and cobalt, will help it contain or even further reduce EV prices for customers. Manufacturing subsidies will also help the EV unit reach its target 8% profit margins by 2026. The factory will use battery technology from China’s CATL and create 2,500 jobs.
  
• Unilever, Citigroup, and Inditex (the owner of retailer Zara) have topped the first-ever ranking of companies addressing the global refugee crisis through economic integration. Refugee Integration Insights (RII) looked at corporate action in six areas: Hiring, Entrepreneur Support, Education & Skills Development, Products & Services, Philanthropy, and General. US companies represent 20% of the top 50 with ten listed companies, including Starbucks, Uber and McDonald’s. You can view the complete ranking here.
  
• Shares in Norfolk Southern continue to fall as the Ohio derailment attracts regulatory scrutiny and lawsuits. Earlier this month, toxic chemicals were released in East Palestine, Ohio after the rail operator’s train went off the tracks. The EPA and NTSB are investigating as health concerns grow and local reports of dead animals emerge. In the last decade, hazardous materials have spilled or leaked from trains more than 5,000 times in the US, according to a USA Today analysis of federal incident reports.

Around the world in 80 funds

Regular FWIW readers know that diversification is one of the most important mantras for a smart investor with a long-term focus. A broadly diversified portfolio can limit market volatility, offer protection from huge losses, and help you achieve more consistent returns. Diversification can take many forms, but it often includes strategies to hold different asset types (stocks, bonds, CDs, cash, etc.), and those assets cover a variety of growth and value strategies, industries and sectors, company sizes, etc.

Geography is another way to add diversification and find attractive long-term growth and returns outside the US economy. In the same way you practice French or get ready to travel across India, it’s a good idea to also broaden your portfolio’s horizons. Investment giant Vanguard recommends that at least 20% of your overall portfolio should lie in international stocks and bonds.

And they may be discounted now while those countries recover from headwinds like inflation, COVID-19, and war. Fidelity predicts that international stocks, and even mature, developed markets such as Europe, will outperform US stocks over the next 20 years. “I think one of the hard lessons that investors learned in 2022 is that equities don’t always go up and US equities don’t always outperform other markets,” said Nathan Kotler, head of trading at GenTrust, to CNBC.

How to add international exposure to your portfolio

The easiest way to invest in foreign companies and foreign government debt is via exchange-traded funds (ETFs) and mutual funds sold and traded here at home that focus on these areas.

You get funds focused on different regions — global, international, continents, frontier/emerging/developed markets, and single countries. Acronyms are aplenty, like EAFE, which stands for Europe, “Australasia” (Australia & New Zealand), and the Far East (East Asia). Industry-specific funds also exist, like the iShares Global Healthcare ETF (IXJ), Invesco Global Water ETF (PIO), and KraneShares CSI China Internet ETF (KWEB).

For those looking for sustainable options, there are ETFs with ESG characteristics or sustainable screens and themes, like the iShares ESG Aware MSCI EAFE ETF (ESGD), Global X Lithium & Battery Tech ETF (LIT) and Vanguard ESG US Corporate Bond ETF (VCEB).

Some mutual funds promise impact, like the Vanguard Baillie Gifford Global Positive Impact Stock Fund (VBPIX) and Impax Global Environmental Markets Fund (PGRNX), which is top-ranked by Fossil Free Funds along with the Calvert International Equity Fund (CWVCX). You can also refer to this list of funds offered by members of US SIF, a non-profit advancing sustainable investing.

Are the stocks greener on the other side? Sometimes.

One major benefit of international funds is the opportunity to invest in many more companies having a positive impact on the world and aligning profit with purpose. For instance, if you take the iShares Global Clean Energy ETF (ICLN), seven of the fund’s top ten holdings are foreign firms with no listings on exchanges here. Only three of the top 20 most-sustainable companies on Corporate Knight’s 2023 ranking are American.

Your values-aligned portfolio also benefits from stronger sustainability regulations and standardized disclosures elsewhere. This June, the European Union will finalize the EU Sustainability Reporting Standards (ESRS), which MSCI analysts say asks for more details than similar climate disclosure frameworks developed by the International Sustainability Standards Board (ISSB) and the US Securities and Exchange Commission (SEC). The bloc’s executive body has also proposed the Corporate Sustainability Due Diligence Directive (CSDDD), which would force 13,000 EU and around 4,000 non-EU companies to conduct human rights and environmental due diligence across their supply chain. Then there are individual country efforts, like the German Supply Chain Due Diligence Act, which went into effect this year.

But, tread carefully…

International investing can have a bit of a Wild West feel to it, especially with countries lagging on sustainability and financial accounting/audit requirements. A recent example of this is the collapse of shares in India’s Adani Group based on a short seller report accusing it of fraud. There are also risks investing in countries with unstable and undemocratic leadership, as we saw in the case of Russia. One fund manager has attempted to address this risk with the Freedom 100 Emerging Markets ETF (FRDM), which only includes countries with higher personal and economic freedom scores.

Before you go -

Single women homeowners now outnumber single men homeowners by about 2.64 million. Sex and the City’s Miranda would be thrilled at how far we’ve come.

** FWIW team members own shares of Citigroup and McDonalds.

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