“Rather than tilting toward companies with better ESG profiles, the Vanguard funds simply use negative screens to exclude a relatively few companies from a broad market index,” said Morningstar.
Investing based on environmental, social and governance (ESG) principles is a theme garnering increased attention, but in the U.S., the 50 or so ESG ETFs have just over $6 billion in combined assets under management. Last month, BlackRock, the largest ETF issuer, said it sees the ESG fund universe jumping to $400 billion over the next decade.
ESGV and VSGX, Vanguard’s new ESG products, charge just 0.12% and 0.15% per year, respectively, and those low fees could lure investors, but investors should look at more than just fees.
“Many will make their first ESG investment in these funds, and many will think, incorrectly, that exclusionary screening is what ESG is all about. A focus on screening rather than positive ESG integration could also lead to underperformance,” according to Morningstar.
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