Vanguard Makes Unexpected ETF Filing

June 28, 2018

Yesterday, Vanguard struck off in a new direction and filed for a pair of ETFs targeting companies that have responsible approaches to environmental, social and governance issues (ESG), including a U.S. fund and potentially the first global ex-U.S. ESG ETF. (Deutsche Bank's ETF arm filed for a global ex-U.S. ESG ETF in late May that could end up being first-to-market.) 

The firm has historically been very selective in how it launches its funds, sticking to market-capitalization weighting for its index products and only launching its first actively managed ETFs earlier this year. Vanguard has never closed an ETF.

The most recent filing outlines plans for the Vanguard ESG U.S. Stock ETF and the Vanguard ESG International Stock ETF. The former will track the FTSE US All Cap Choice Index, while the latter will track the FTSE Global All Cap ex US Choice Index, which covers non-U.S. developed and emerging markets. Both methodologies select their components from across the size spectrum and weight them by market capitalization, according to the prospectus.

Methodology

Companies are screened according to ESG criteria, with those with business operations involving pornography, alcohol, tobacco, weapons, fossil fuels, gambling and nuclear power excluded entirely. Companies that do not meet United Nations standards with regard to labor, human rights, the environment and corruption are also not included in the indexes. Finally, companies must meet what the prospectus describes as “appropriate” requirements for diversity.

Most remarkably, the U.S. fund is slated to come with an expense ratio of 0.12%, which will make it the cheapest U.S.-focused ESG fund available. Meanwhile, the global ex-U.S. fund will charge 0.15%, which compares with the 0.20% cost of the iShares MSCI EAFE ESG Optimized ETF (ESGD), the cheapest developed markets ex.-U.S. ESG ETF.

Both funds are slated to list on the Cboe BZX Exchange, which is owned by ETF.com’s parent company, Cboe Global Markets.

Contact Heather Bell at [email protected]

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