Vanguard has added to its current environmental, social, and governance (ESG) fund offerings with the Vanguard Global ESG Select Stock Fund, a new active equity fund which will be managed by Wellington Management Company and is expected to be available for investment in mid-2019.
“Vanguard’s new Global ESG Select Stock Fund is taking a distinctive approach to ESG investing, seeking long-term outperformance through the selection of companies that integrate leading ESG practices into their corporate strategies,” says Matthew Brancato, head of Vanguard’s Portfolio Review Group.
While complementing Vanguard’s existing index-based ESG offerings that adhere to exclusionary screening processes, the Global ESG Select Stock Fund will take a markedly different investment approach by employing an active portfolio integration strategy. Wellington Management will seek to outperform the FTSE All-World Index, a global benchmark that covers a majority of developed and emerging markets. In pursuit of this objective, Wellington Management will identify and select approximately 40 companies that they believe demonstrate exemplary long-standing ESG practices and have strong business fundamentals and management teams with proven track records of good capital allocation decisions for shareholders. The fund is expected to hold stocks over an extended time horizon, resulting in low portfolio turnover.
In addition to investment advisory responsibilities, Wellington Management will be responsible for governance activities for the fund. This will enable the fund managers to fully integrate proxy voting and company engagements into the fund’s investment strategy.
Founded in 1928 and managing more than USD1 trillion in assets, Wellington Management has a long and successful investment management history, including management of the nation’s oldest balanced fund, the USD100 billion Vanguard Wellington Fund. In addition, the firm has the breadth and depth of investment resources to integrate ESG considerations with its fundamental investment analysis. The firm has managed ESG-related investment strategies for more than ten years and currently manages nine dedicated ESG strategies. Wellington is Vanguard’s largest and longest-serving external advisory partner, managing more than USD336 billion on behalf of Vanguard across a wide variety of equity and bond mandates.
The Global ESG Select Stock Fund is expected to be among the lowest-cost in the active ESG fund category with expense ratios of 0.45 per cent and 0.55 per cent for Admiral and Investor shares, respectively. By comparison, the average asset-weighted expense ratio of actively-managed funds labelled as socially-conscious by Morningstar is 0.69 per cent.
The fund is designed for investors with balanced, diversified portfolios who wish to invest in companies with leading ESG practices and strong business fundamentals, as identified by Wellington Management. At times, the fund may hold companies that would be omitted by some exclusionary ESG strategies, so this strategy may not be ideal for investors seeking to avoid investing in particular sectors or companies involved in activities that are at odds with their individual values.
