My industry sure makes it hard to invest responsibly. I suspect that a big part of the challenge comes from the fact that few people with finance degrees and technical designations have ever studied history and philosophy in depth. Sure, the CFP Board requires two hours of ethics as part of its biannual education requirements, but I see this as perfunctory box-checking that does little good.
These recurring thoughts recently returned as I searched to add a very small allocation to emerging-markets equities in some of our models. Long-term readers know that we avoid investing in places lacking the rule of law and human rights. Purely from an investment perspective, investments are contracts, and their values depend upon a strong legal tradition and the ability of investors and the companies that they invest in to enforce those contracts. Simple enough even without taking a moral stand.
The rub is that investment professionals have been taught to benchmark and managers are judged against those benchmarks. Most major companies that design benchmarks include dominant allocations to Communist China. For example, the Morningstar Emerging Markets Target Market Exposure NR USD contained as its largest allocation 27.84% to China as of June 30. Any exchange-traded fund or mutual fund that deviates from that exposure is penalized in the rankings. The analysts who write opinions unironically scold managers who do not allocate more than one-fourth of their investments to a country with a remarkably poor record on human rights and that is openly hostile to democracies, especially our own. Jimmy Lai, the courageous Hong Kong newspaper publisher, continues to languish in a Chinese prison. Yet, our investment experts would have us invest in the system of his captors if we are to avoid a scolding.
We at Treasure Coast Financial Planning have studied history and philosophy. We know that investing in dictatorships yields bad results financially and ethically. We benchmark our large foreign core to the S&P Ex-US Broad Market Index which had as its top allocation 21.73% to Japan as of June 30, followed by the UK, Canada, Germany, France, and so forth. As for our tiny position in emerging markets stocks, we have decided to benchmark to the Emerging Markets Human Flourishing Index as a means to avoid investing in harsh and unreliable dictatorships.
*https://indexes.morningstar.com/indexes/details/morningstar-emerging-markets-FS00009P5Q?currency=USD&variant=NR&tab=performance. Accessed on 07.2025.
**https://www.spglobal.com/spdji/en/indices/equity/sp-developed-ex-us-bmi/#data. Accessed on 07.2025.