Home / Vanguard’s zero wars and negative-screen ESG funds

Vanguard has rolled out a suite of environmental, social and governance (ESG) funds first offered in NZ to the Australian market. Last week Vanguard launched the ‘Ethically Conscious’ range of global share and bond funds in both unlisted and ETF formats in Australia.

The passive fund giant, which manages more than US$5 trillion worldwide, released the NZ dollar-hedged Ethically Conscious Global Aggregate Bond Index Fund earlier in August followed a week later by a similarly-branded international shares fund.

Both of the new Vanguard products “exclude fossil fuel reserves, alcohol, tobacco, gambling, weapons, nuclear power and adult entertainment”, the manager said in a statement last week.

The latest Vanguard ESG products take the negative screening a step further than the group’s International Shares Select Exclusions Index Fund, launched in November 2016, again originally for the NZ market.

Vanguard developed the global equities Exclusions Index Fund, which screens out a handful of controversial weapons and tobacco manufacturers, following demand from NZ clients stung by a public outcry over potential exposure to cluster bomb-makers in KiwiSaver schemes.

At the time, Robin Bowerman, Vanguard Australia head of corporate affairs, said the new fund would also target Australian investors. “Tobacco is a common theme for Australian investors,” Bowerman said in 2016. “And from a New Zealand perspective it’s important the product builds scale over the long-term, which will allow fees to reduce.”

Both the NZ dollar-hedged versions of the Exclusions Index and Ethically Conscious global equities funds cost 26 basis points (bps).

The Australian dollar-hedged Ethically Conscious international shares fund is slightly cheaper at 23 bps while the unhedged and ETF versions are priced at 20 bps and 18 bps, respectively. However, the global fixed income Ethically Conscious Australian and NZ dollar-hedged funds cost the same 28 bps, a touch more than the 26 bps price-tag on the ETF variant.

In a statement, Evan Reedman, Vanguard Australia head of product and marketing, said: “We understand that some investors want products that allow them to achieve their investment objectives while also investing in line with their values.

“We are pleased to be offering ESG equities and fixed income funds that meet this need while maintaining the hallmarks of Vanguard funds, low cost and broad diversification.”

The Ethically Conscious global equities fund is designed to track the FTSE Developed ex Australia ex Non-Renewable Energy/Vice Products/Weapons Index while the new bond fund follows the Bloomberg Barclays MSCI Global Aggregate ex SRI Exclusions Index.

Following the new product release, Vanguard Australia now manages 76 products including 26 ETFs.

Late in August, Vanguard US expanded the range of “commission-free” ETFs available to investors via its online platform from its in-house products to include about 90 per cent of the market.

Vanguard Brokerage clients will now pay no commission on “1,800 of the roughly 2,000 ETFs currently trading on the major exchanges”, the group says. The Vanguard move came a couple of weeks after rival firm Fidelity released a pair of “zero-fee” global equity ETFs.

“In an environment where some financial firms are curtailing access to leading ETFs, Vanguard’s expanded commission-free platform will result in lower costs for initial ETF investments as well as strategies such as dollar-cost averaging, rebalancing, and harvesting losses for tax purposes,” the Vanguard statement says.

“…Vanguard encourages investors to consider the all-in costs of their relationship with an investment provider, including the explicit costs of investing in index and active funds, paying commissions on stocks and ETFs, and receiving advice, as well as the opportunity costs associated with lower-yielding money market accounts and lower after-tax returns.”

– David Chaplin, Investment News NZ