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The concept of environmental, social and governance (ESG) may sound conservative but the issuance of ESG-based ETFs has been pretty aggressive lately. Companies that focus heavily on ESG practices are much sought-after by investors, if we go by BlackRock (read: Here's Why ESG ETFs Exceled in Last Three Years).
No wonder, issuers are rolling out products specifically targeting the ESG criteria. Recently, Vanguard joined the bandwagon. Vanguard’s products will eliminate stocks of companies from adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling, and nuclear power. These new funds are low-cost in nature, in line with the Vanguard’s practice.
The underlying index of the fund looks to measure the performance of large-, mid-, and small-capitalization stocks of companies, which are screened on the basis of ESG criteria. The fund will charge 12 bps in fees (read: Vanguard Action to Make ETF Investing More Affordable).
Here the fund will follow large-, mid-, and small-capitalization companies of developed and emerging markets outside the United States. These stocks will also be chosen on the basis of some ESG factors. It will charge 15 bps in fees (read: 5 Europe ETFs With Great ESG Scores).
How Does It Fit in a Portfolio?
These funds are the lowest-cost ESG products, per Vanguard. The ESG investing theme is in vogue right now. Investors appear to be bothered about the future of the environment and the effect it might have on their investing portfolio (read: Sustainable ETFs Gather Momentum: What's Behind the Surge).
Apart from the social standpoint, this investing practice offers substantial gains to investors. This is because lesser focus on environmental issues by the companies may result in lawsuits, fines and damages, per the source.
ETF Competition
Investors should note that there are about 73 socially-responsible ETFs traded in the U.S. markets. These have amassed assets of $7.49 billion with an average expense ratio is 0.45%, per etf.com.
So far, the lowest-cost ESG ETF available is from iShares —iShares ESG 1-5 Year USD Corporate Bond ETF (SUSB - Free Report) — charging 12 bps in fees. However, this is a bond fund. In the equity spectrum, the lowest cost fund so far available was Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG - Free Report) , per etf.com, charging 14 bps in fees. Since Vanguard’s U.S.-based ETF charges less than EASG, the newbie should see success.
From the international perspective, iShares MSCI ACWI Low Carbon Target ETF (CRBN - Free Report) with global exposure charges 20 bps in fees. Since the United States takes about half of the fund, CRBN doesn’t become an exact competitor to Vanguard’s international ETF.
Columbia Sustainable International Equity Income ETF (ESGN - Free Report) , which charges 45 bps in fees, should be compared with the international version of Vanguard’s proposed fund. Notably, there are not many ESG funds that have ex-U.S. exposure (considering both developed and emerging economies). So, expense ratio-wise and investment objective-wise, the proposed Vanguard funds should not face steep competition.
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Vanguard Jumps on the ESG ETF Bandwagon
The concept of environmental, social and governance (ESG) may sound conservative but the issuance of ESG-based ETFs has been pretty aggressive lately. Companies that focus heavily on ESG practices are much sought-after by investors, if we go by BlackRock (read: Here's Why ESG ETFs Exceled in Last Three Years).
No wonder, issuers are rolling out products specifically targeting the ESG criteria. Recently, Vanguard joined the bandwagon. Vanguard’s products will eliminate stocks of companies from adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling, and nuclear power. These new funds are low-cost in nature, in line with the Vanguard’s practice.
Inside the newly-launched ETFs:
Vanguard ESG U.S. Stock ETF ESGV
The underlying index of the fund looks to measure the performance of large-, mid-, and small-capitalization stocks of companies, which are screened on the basis of ESG criteria. The fund will charge 12 bps in fees (read: Vanguard Action to Make ETF Investing More Affordable).
Vanguard ESG International Stock ETF VSGX
Here the fund will follow large-, mid-, and small-capitalization companies of developed and emerging markets outside the United States. These stocks will also be chosen on the basis of some ESG factors. It will charge 15 bps in fees (read: 5 Europe ETFs With Great ESG Scores).
How Does It Fit in a Portfolio?
These funds are the lowest-cost ESG products, per Vanguard. The ESG investing theme is in vogue right now. Investors appear to be bothered about the future of the environment and the effect it might have on their investing portfolio (read: Sustainable ETFs Gather Momentum: What's Behind the Surge).
Apart from the social standpoint, this investing practice offers substantial gains to investors. This is because lesser focus on environmental issues by the companies may result in lawsuits, fines and damages, per the source.
ETF Competition
Investors should note that there are about 73 socially-responsible ETFs traded in the U.S. markets. These have amassed assets of $7.49 billion with an average expense ratio is 0.45%, per etf.com.
So far, the lowest-cost ESG ETF available is from iShares —iShares ESG 1-5 Year USD Corporate Bond ETF (SUSB - Free Report) — charging 12 bps in fees. However, this is a bond fund. In the equity spectrum, the lowest cost fund so far available was Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG - Free Report) , per etf.com, charging 14 bps in fees. Since Vanguard’s U.S.-based ETF charges less than EASG, the newbie should see success.
From the international perspective, iShares MSCI ACWI Low Carbon Target ETF (CRBN - Free Report) with global exposure charges 20 bps in fees. Since the United States takes about half of the fund, CRBN doesn’t become an exact competitor to Vanguard’s international ETF.
Columbia Sustainable International Equity Income ETF (ESGN - Free Report) , which charges 45 bps in fees, should be compared with the international version of Vanguard’s proposed fund. Notably, there are not many ESG funds that have ex-U.S. exposure (considering both developed and emerging economies). So, expense ratio-wise and investment objective-wise, the proposed Vanguard funds should not face steep competition.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>