Vanguard Cheap AF ESG Portfolio

Investing comes with risk. This article is a general discussion of the merits and risks associated with these ETFs, not a specific recommendation. Speak to an investment professional and make sure your portfolio is diversified. Tim Nash does not own any shares of the ETFs mentioned in this article.

I’ve long admired Vanguard’s unique ownership structure and their mission to keep fees low for investors. Imagine my excitement when they launched their new ETFs with a socially responsible mandate. I even got to write about their pros and cons for MoneySense! This portfolio is by no means perfectly sustainable, but it is hyper diversified and very cheap with a total Management Expense Ratio (MER) of just 0.19%.

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Asset Class

Allocation

ETF Name

Ticker

MER

Currency

US Equity

30%

Vanguard ESG U.S. Stock ETF

ESGV

0.12

USD

Int'l Equity

30%

Vanguard ESG International Stock ETF

VSGX

0.15

USD

Gov’t Bonds

40%

Vanguard Canadian Government Bond Index ETF

VGV

0.28

CAD

Curiously, Vanguard’s Canadian Government Bond ETF (VGV) is not the cheapest Canadian government bond ETF on the market so investors can lower their total MER to 0.15% by swapping it out for less expensive options from BMO (ZGB) and iShares (CLG).

Now for the nerdy stuff.

Although I love that Vanguard now has socially responsible ETFs, they are a long way from being entirely sustainable. The equity ETFs track indices from the FTSE Global Choice Index Series. The strategy used is called 'negative screening', and the fund explicitly eliminates the following areas:

These funds omit the most evil sectors, but they contain plenty of companies that readers would consider red flags. For example, pipelines are not explicitly considered as fossil fuels so companies like Enbridge and Transcanada are inside of the international fund. The US fund contains DowDuPont, who is in the process of buying Bayer / Monsanto. People should definitely scroll through the list of companies to see if there are any deal-breakers.

The Vanguard funds don't consider any type of Environmental, Social, and Governance (ESG) rating or sustainability score when determining the company weighting, which is too bad since there's increasing evidence that ESG scores correlate with financial outperformance. It’s also a little misleading since the ESG acronym is used in the name / ticker symbol.

Finally, Vanguard has very weak proxy voting guidelines for social and environmental issues. Although they engage with companies quite closely according to their Investment Stewardship Report, they seem to only support sustainability issues through the lens of risk oversight and disclosure. This means that although Vanguard may vote your shares for resolutions like disclosure of carbon emissions, it’s unlikely that they’ll be proactive in pushing companies towards sustainability. I’m disappointed to see that in 2018 Vanguard supported only 5% of environmental / social proposals (with a disclaimer that many proposals were withdrawn as companies and shareholders worked together to find a compromise on certain issues).

In conclusion, this portfolio is by far the cheapest and easiest way for investors to get out of problematic sectors like oil & gas, tobacco, and weapons. But it probably doesn’t dive deep enough for investors who are trying to get ahead of the economic shift towards sustainability.

 

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followed this page 2019-02-25 18:02:01 -0500
Don't let your money do things you wouldn't