Vanguard Enters ESG Arena With Two ETFs

In what may be just what the scuffling marketplace of exchange traded fund focusing on environmental, social and governance principles needs, Vanguard entered the ESG ETF arena Sept. 19 with two new products.

The ETFs are the Vanguard ESG U.S. Stock ETF ESGV and Vanguard ESG International Stock ETF VSGX.

What Happened

Finding ESG ETFs is not difficult; in terms of sheer size, that universe is rapidly expanding. Finding truly successful ESG ETFs is a another story. Prior to Vanguard introducing its ESG ETFs, there were 50 such funds trading in the U.S. with just $6 billion in combined assets under management, with a significant portion of that $6 billion allocated to just a handful of funds.

Time will tell if Vanguard can shake up the ESG space, but most of Vanguard's additions to its ETF roster tend to prove successful in attracting investor assets.

Why It's Important

Market observers speculate that one reason some ESG ETFs are not gaining traction with investors is higher fees. Bloomberg's Eric Balchunas said the average fee on ESG ETFs is 0.5 percent per year, or $50 on a $10,000 investment.

Cheaper ESG ETFs are proving to be the better asset gatherers in the category. The new Vanguard funds are inexpensive relative to the broader ESG ETF space. The Vanguard ESG U.S. Stock ETF and the Vanguard ESG International Stock ETF charge 0.12 percent per year and 0.15 percent per year, respectively.

The new “funds exclude companies involved in the production of alcohol, tobacco, gambling, adult entertainment, weapons, fossil fuels and nuclear power,” according to Vanguard. “The construction methodology also excludes companies that do not meet certain diversity criteria, as well as the labor, human rights, anticorruption and environmental standards defined by the U.N. Global Compact Principles.”

What's Next

ESGV, Vanguard's domestic ESG ETF, tracks the FTSE US All Cap Choice Index. The index allocates about 40 percent of its combined weight to the technology and health care sectors. Apple Inc. AAPL and Amazon.com Inc. AMZN are among that new ETF's top 10 holdings.

The Vanguard ESG International Stock ETF targets the FTSE Global All Cap ex U.S. Choice Index. Financial services, industrials and consumer discretionary are among that benchmark's largest sector weights. Japan, the U.K. and Canada are among the largest geographic exposures in the new ETF.

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