What is CDEI? (Pros, Cons, and Strategies)

Increasingly, investors are seeking opportunities that not only promise financial returns but also align with their values. In this context, the Calvert US Large-Cap Diversity, Equity and Inclusion Index ETF (CDEI) has garnered attention. This blog will explore what CDEI is, along with its advantages, disadvantages, and strategies for investment.

What is CDEI?

CDEI stands for Calvert US Large-Cap Diversity, Equity and Inclusion Index ETF. As its name suggests, this ETF focuses on companies that exhibit strong commitments to diversity, equity, and inclusion (DEI) practices.

CDEI tracks the Calvert US Large-Cap Diversity, Equity and Inclusion Index, which selects companies that not only display solid financial performance but also excel in DEI initiatives. This ETF is targeting investors who seek both financial growth and social impact through their investments.

Key Features of CDEI

• Focus on DEI: Companies included in this index demonstrate strong DEI practices.
• Large-Cap Focus: Companies with large market capitalizations, ensuring financial stability and lower volatility.
• ESG Criteria: Incorporates environmental, social, and governance (ESG) standards, focusing mainly on the 'S' of ESG.

The ETF aims to marry the potential for financial returns with positive social outcomes, thereby providing investors with a two-fold benefit of profitability and ethical investment.

CDEI Composition

CDEI includes well-known large-cap companies that have established robust DEI practices. Though the list of holdings may change over time, you can expect to see companies from diverse sectors such as technology, healthcare, and finance. Yet, the common thread is their strong performance on DEI metrics, which include gender and racial diversity in leadership, equitable compensation practices, and inclusive work environments.

Pros of CDEI

Ethical Investing

One of the main benefits of CDEI is the ability to invest ethically. This ETF targets companies that excel in DEI practices, allowing investors to support organizations that are making strides toward social equity. For investors who are passionate about these issues, this ETF provides a way to align their investments with their values.

Diversification

CDEI provides diversification across multiple sectors and companies, reducing sector-specific risks. This makes the ETF a good option for those looking to build a well-rounded investment portfolio.

Growing Popularity of ESG

As the focus on ESG factors continues to grow, companies that excel in these areas are likely to attract more investors, potentially driving up the stock prices and enhancing the returns for CDEI. This increased attention on DEI metrics ensures that companies are continually working towards better practices, adding a layer of safety and responsibility to your investment.

Cons of CDEI

Performance Risk

While ethical investing is a significant advantage, companies may face higher operational costs associated with implementing DEI initiatives. This could potentially impact their profitability in the short term, leading to performance risks for the ETF.

Expense Ratio

Typically, ESG-focused ETFs have slightly higher expense ratios compared to traditional ETFs. This is due to the costs involved in the evaluation and monitoring of companies based on DEI metrics. While this ensures more responsible investments, it can eat into your overall returns, especially in the long term.

Limited History

CDEI is relatively new compared to more traditional ETFs like SCHD, meaning there's less historical data to analyze its performance. This could make it a riskier investment as it hasn't yet proven its long-term viability.

CDEI Investment Strategies

Investing in CDEI requires a balanced approach that considers both the financial and social impact you're aiming to achieve. Here are some strategies you can adopt:

Long-term Investment Strategy

Given the focus on large-cap, financially stable companies, CDEI is suitable for long-term investments. If you aim to invest for 10 years or more, this ETF is likely to provide both financial growth and the satisfaction of contributing to better DEI practices in corporate America.

Ethical Portfolio Construction

If ethics and social responsibility are important to you, consider combining CDEI with other ESG-focused ETFs or funds. This will help you build a diversified portfolio that aligns with your values while also spreading your risk across various asset classes.

Dividend Reinvestment

Regularly invest a fixed amount in CDEI and reinvest any dividends to leverage the power of compounding. This strategy can significantly enhance your returns over the long term, making it more suitable for retirement planning.

CDEI provides a unique opportunity for investors who are not just looking for financial returns but also want to invest in companies that are making a positive social impact. While there are performance and expense risks, the benefits of ethical investing and diversification make CDEI a compelling option for long-term investors.