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Vanguard Plans To Flex Low-Cost Muscle In The ESG ETF Space

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Vanguard Plans To Flex Low-Cost Muscle In The ESG ETF Space
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Index fund and exchange traded funds giant Vanguard is planning a foray into the environmental, social and governance ETF arena.

In a Wednesday statement, Pennsylvania-based Vanguard said it filed a preliminary registration with the Securities and Exchange Commission to introduce two ESG ETFs that would debut in September.

What Happened

Vanguard is looking to introduce the Vanguard ESG U.S. Stock ETF and Vanguard ESG International Stock ETF. The fund sponsor already offers an ESG index fund, the Vanguard FTSE Social Index Fund.

“Vanguard ESG U.S. Stock ETF will seek to track the FTSE US All Cap Choice Index, a market-cap weighted benchmark comprising large-, mid- and small-cap U.S. stocks screened on specific environmental, social and governance criteria,” the statement said.

The Vanguard ESG International Stock ETF will track the FTSE Global All Cap ex US Choice Index. That benchmark includes “large-, mid-, and small-cap stocks in developed and emerging international markets (excluding the U.S.) screened on specific environmental, social, and governance criteria,” according to Vanguard.

Why It's Important

ESG ETFs are expected to be a source of growth for the industry in the years ahead, but to date, just one trading in the U.S. has over $1 billion in assets under management. Time will tell if Vanguard’s new products will ascend to the pantheon of ESG ETFs, but the issuer could make inroads with investors by keeping with its tradition of low fees.

The Vanguard ESG U.S. Stock ETF will have an annual fee of just 0.12 percent, or $12 on a $10,000 investment, while the Vanguard ESG International Stock ETF will charge 0.15 percent, putting both among the least expensive ESG ETFs.

What's Next

The new funds will follow some familiar exclusionary tactics seen in other ESG products.

“In the development of the benchmarks, FTSE screens its broad domestic and international stock indexes and excludes stocks of companies in the following industries: adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling and nuclear power,” according to the statement.

Vanguard’s new ESG ETFs will also employ certain diversity criteria as well as the United Nations' labor and human rights criteria, among other principles.

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