Vanguard Australia has launched an Australian shares environmental, social and governance (ESG) fund and exchange traded fund (ETF), expanding its Ethically Conscious range.
The Vanguard Ethically Conscious Australian Shares Fund and ETF (ASX:VETH) provide exposure to approximately 240 shares listed on the ASX while removing companies with significant business activities involving fossil fuels, alcohol, tobacco, gambling, military weapons and civilian firearms, nuclear power, and adult entertainment.
"We've had ESG related products in the market for some time," said Evan Reedman, head of product at Vanguard Australia. "The complement to the products we launched today - the Ethically Conscious global equity and global bond funds, have been in the market for about 2 years now."
Vanguard Australia manages $3.5 billion across its ESG range to date, with about $1.3 billion in AUM for the ethically conscious global equities product, Reedman said.
"We've been working w/ understanding the needs and preferences and how they've changed for clients looking at Aussie equities. One of the challenges is that it's a much narrower market, so we've had to work v closely w/ FTSE, who is our index provider. ... They're a very reputable producer of ESG indices, but it also allows us now to talk to clients about building a portfolio of ethically conscious exposure across Australian equities, global equities, and global bonds."
The Ethically Conscious Australian Shares Fund and ETF exclude shares of certain companies whose conduct contravenes the principles of the UN Global Compact pertaining to labour rights, human rights, environment and anti-corruption. Its benchmark is the FTSE Australia 300 Choice index, and the management expense ratio of for the fund is 0.20% and 0.16% for the ETF.
Reedman emphasised that in addition to allowing investors to invest in ways that align with their values, the fund is also designed to provide risk adjusted return through diversification, low costs and a long-term view.
"Clients should take a long term view, costs matter and in this instance, it's a realisation that clients really want to feel good and express a view of their investments," Reedman said. "The research we've done suggests that there's not a performance drag when doing that. That's predicated on taking a long term view of your investments.
"As you start and filter the portfolio, it will behave differently to the underlying index. We hold about 240 stocks out of the ASX300, so it won't perform the same, but over a long performing period, you won't tend to be penalised for holding a portfolio that emphasises ESG characteristics."
Vanguard is augmenting its Ethically Conscious line at the same time as it is also winding up its institutional investment business to emphasise to retail, adviser and its in-house super offering, as reported in sister publication Financial Standard.
The Ethically Conscious suite was launched in 2018, and Vanguard has evolved the line based on the demands and needs of clients, Reedman said.
"We're definitely seeing that shift from previous years, with institutions wanting to remove tobacco from their international equities portfolios to today our advisers are having clients come in and say, it's really important to me to be able to have a socially responsible investment in my portfolio," Reedman said. "They're linked in that we would see our future strategy focusing on retail and advisers, as being a very important audience for these types of products."