Vanguard is out with its first actively managed environmental, social and governance (ESG) fund.
While active management and Vanguard are hardly synonymous, the Global ESG Select Stock Fund (VEIGX) will be run by Wellington Management and focus on “enhancing long-term returns and controlling risks by focusing on ESG practices that can materially impact shareholder returns.”
The firm will select about 40 companies “that demonstrate exemplary, long-standing ESG practices, strong business fundamentals and prudent capital allocation,” according to the investment giant.
The fund is designed for investors who wish to invest in companies with leading ESG practices and strong business fundamentals, yet at times, it may hold companies that would be omitted by some exclusionary ESG strategies, so the fund may not be ideal for investors seeking to exclude particular
Expected expense ratios will be 0.45% and 0.55%, depending on how it’s held, yet Vangura notes the average asset-weighted expense ratio of actively managed funds labeled as socially conscious by Morningstar is 0.71%.
Deep ESG and active roots
Vanguard claims deep roots in active management and “partners with the world’s top active advisors to provide clients with a diverse range of active funds,” with $1.3 trillion in active strategies currently under management.
Wellington allegedly has a “strong history of ESG investing and its world-class ESG research and investment teams seeks to incorporate analysis of ESG factors into many of its investment and risk-management processes.”
Despite an uptick in environmental, social, and governance-focused conversations in the 401k and defined contribution markets, in particular, ESG-oriented investment options face headwinds to widespread adoption, according to Cerulli Associates.
The Boston-based global research and consulting firm notes that fee sensitivity, the (mistaken?) notion that ESG investing entails a trade-off in performance, and the regulatory environment in the DC market present barriers to adoption.
However, Cerulli survey data shows that plan participants and plan sponsors are generally supportive of ESG-oriented investments as a concept.