Alternative Investment: Vanguard Launches Its First ESG-focused Fixed Income Product For U.S. Investors

July 13, 2020 | Alternative Investments, News

The new ETF will complement Vanguard’s existing equity ESG ETFs and mutual funds.

Vanguard filed a preliminary prospectus for a corporate bond ETF that will offer U.S. investors investment-grade corporate bonds with additional exposure to environmental, social, and governance (ESG) criteria. The fund manager has moved to take advantage of the growing investor awareness and interest in the sustainable investing market. Additionally, there were few fixed-income ETFs in the ESG arena, and therefore the new ETF will fill a void. (InvestmentNews)

Vanguard ESG U.S. Corporate Bond ETF

Expected to commence in September. The Vanguard ESG U.S. Corporate Bond ETF will “benefit from our leading fixed income indexing capabilities, a low expense ratio, and robust screening process, all in an accessible and diversified manner,” according to Kaitlyn Caughlin, head of Vanguard’s Portfolio Review Department.

The new fund will have an expense ratio of 0.12%.

It will track the Bloomberg Barclays MSCI US Corporate SRI Select Index. It includes broad coverage of the U.S. corporate bond market, with a focus on highly liquid bonds. Further, it excludes those bonds whose issuers fail to meet specified ESG criteria. It also excludes bonds and maturities of one year or less and with less than $750 million outstanding.

Excluded activities are adult entertainment, alcohol, gambling, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear power, genetically modified organisms, or thermal coal, oil, or gas.

Corporate debt with sustainable investing

“It’s a newer and relatively small category,” said Todd Rosenbluth, director of mutual fund and ETF research at CFRA. “If you’re uncomfortable owning companies that are ESG unfriendly in your stock portfolio, you should be equally uncomfortable owning them in your bond allocation.”

Fund management

Vanguard’s Fixed Income Group, which oversees more than $1.8 trillion in global assets, will serve as the advisor for Vanguard ESG U.S. Corporate Bond ETF. The team has delivered consistent, long-term performance, as 95% of Vanguard’s bond funds have outperformed their peers over ten years.

Related Story:  Vanguard looking to board the private equity bandwagon

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