Vanguard Australia has expanded its suite of ‘ethically conscious’ ETFs with the launch of a new strategy targeting Australian equities.
Vanguard has expanded its ethically conscious ETF suite in Australia.
The Vanguard Ethically Conscious Australian Shares ETF (VETH AU) provides broad exposure to the Australian stock market while avoiding companies that are not aligned with environmental, social, and governance (ESG) principles.
The fund has listed on the Australian Securities Exchange (ASX) and comes with an expense ratio of 0.16%.
Vanguard’s ethically conscious ETF suite debuted in September 2018 and also includes global ex-Australia equity and global aggregate bond offerings – the Vanguard Ethically Conscious International Shares Index ETF (VESG AU) and the Vanguard Ethically Conscious Global Aggregate Bond Index Hedged ETF (VEFI AU).
These funds house A$150 million and A$20m in assets under management respectively.
Evan Reedman, Head of Product at Vanguard Australia, said, “In this range, we are focused on delivering funds that screen for the evolving needs and preferences of ESG investors while staying true to the core principles that underpin all of our products: clear goals, broad diversification, low costs, and a long-term view.
“We’ve seen a growing demand from both our financial advisor and retail clients for responsible and ethical products, demonstrated by consistent growth in our existing ethically conscious funds. Investors want funds that are consistent with their values without having to make the trade-off with performance or their financial goals, and we continue to seek ways to deliver on that need.
“These products, when used in combination with our existing ethically conscious funds, enable investors to build a well-diversified global ESG portfolio that benefits from consistent, transparent methodology and values.”
Methodology
The new fund is linked to the FTSE Australia 300 Choice Index which is based upon the parent FTSE Australia 300 Index universe covering the largest 300 ASX-listed stocks.
The methodology removes firms with significant business activities involving fossil fuels, alcohol, tobacco, gambling, military weapons, civilian firearms, nuclear power, and adult entertainment.
Additionally, companies whose conduct contravenes the principles of the UN Global Compact pertaining to labour rights, human rights, the environment, and anti-corruption are also excluded.
The remaining constituents are weighted by float-adjusted market capitalization while the weight of any ICB industry is limited to a 5% deviation from its weight in the parent index. Rebalancing occurs on a quarterly basis.
The index currently has 237 consituents and is notably overweight banking (20.5% vs. 18.0% in the FTSE Australia 300), health care (16.1% vs. 11.8%) and industrial goods (9.8% vs. 7.6%) while underweight basic resources (12.3% vs. 17.6%) and retail (6.5% vs. 9.1%).
By removing approximately a fifth of the total constituents, the index is more concentrated at the security level with the top ten stocks accounting for a 47.1% weight compared to 37.5% in the parent index. The largest names are CSL (11.2%), Commonwealth Bank of Australia (8.1%), Westpac Banking (4.4%), Wesfarmers (4.3%), and National Australia Bank (4.2%).
The index is yielding 4.1% which is very slightly down on the 4.0% exhibited by the parent index.
Other ETFs in the ESG Australian equity category include the A$690m BetaShares Australian Sustainability Leaders ETF (FAIR AU), which comes with an expense ratio of 0.49%; the A$250m Russell Investments Australian Responsible Investment ETF (RARI AU), which has an expense ratio of 0.45%; the A$60m VanEck Vectors MSCI Australian Sustainable Equity ETF (GRNV AU), which costs 0.35%, and the A$10m SPDR S&P/ASX 200 ESG ETF (E200 AU), which is the cheapest at just 0.13%.