Vanguard SRI Global Stock Fund

digbydog

What does 'SRI' stand for in the name of this fund: Vanguard SRI Global Stock Fund? Looked on their website and cannot see it mentioned anywhere.

I'm looking to find a long term diversified, low-cost tracker but the finance industry seems to go out of its way to make something that to my mind should be simple over complex.

Maybe I know so little I cannot appreciate how complicated the subject is.

frankmassiebonsai

Socially responsible investing, or something to that effect. It's a global tracker fund with some of their 'socially-responsible' filters applied to screen out certain investments.

frankmassiebonsai

p.s. worth adding that you pay a higher cost for the SRI element. Unless that's something you're specifically looking for its unlikely to be your best choice. If you search this forum for something like 'global equity tracker fund' you'll find a number of (cheaper) alternatives from the likes of vanguard, L&G, HSBC etc. Or a similar search on Morningstar, trustnet etc

bowlhead99

SRI means 'socially responsible investing'. Basically this particular fund tries to follow the FTSE Developed Index (a global index of stocks from developed countries) but does not want to hold companies that don't meet its SR criteria so it buys all the other ones that do meet its criteria and then applies some fudge factor to make up the difference - by holding a sample of companies it does like in the right proportions to fill the gap, and try to achieve the same overall result of the FTSE Developed Index without actually holding those companies that it doesn't like (e.g. those that violate UNGC or make certain types of weapons).

So basically it's a 'feelgood' version of the normal FTSE Developed Index - which in itself is a largecap tracker but only for developed markets and not emerging markets. You would need to buy emerging market exposure on the side. Whereas if you got something like their FTSE Global All Cap tracker which includes emerging markets you might not bother buying that separately. Personally I would still buy some more EM separately (because I want more exposure to emerging markets than the current EM share of global market capitalisation), but I'm not overall a slave to indexing.

They do an SRI version of the "developed Europe-including-UK" index too.

1. Benchmark Index
The FTSE Developed Index (the “Index”)
The FTSE Developed Index is a market-capitalisation-weighted index of large and midsized common stocks of companies in developed countries. Further information on the composition of the Index may be obtained at http://www.ftse.com/analytics/factsheets/Home/ConstituentsWeights

3. Primary Investment Strategies
The Fund employs a “passive management” — or indexing — investment strategy designed to achieve the performance of the Index by investing in a portfolio of securities that, insofar as possible and practicable, consists of a representative sample of the component securities of the Index that satisfy the application of a screening process for socially responsible investing as described below.

The Fund will not hold stocks of companies in the Index that do not meet specific “socially responsible” criteria. The Fund will hold a representative sample of those Index securities meeting socially responsible criteria in approximate proportion to its weighting in the Index, optimizing the Fund to match the risk factors and performance of the Index. Socially responsible investing (“SRI”) is broadly defined as an investment approach that aims to integrate social, environmental, and ethical considerations into investment selection. The Index provider has developed a customized SRI screening process designed to analyse companies issuing securities in the Index. The Index is comprised of large and mid-cap companies located in developed countries The Index securities are free-float weighted and liquidity screened to ensure that only the investable opportunity set is included. The Index provider conducts regular reviews to ensure that a continuous and accurate representation of the Index market is maintained. The SRI screening process is designed to exclude Index constituents that are or have engaged in activities that result in serious violations of the United Nations Global Compact (“UNGC”). The UNGC is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with universally accepted principles in the areas of human rights, labour, the environment and anti-corruption. The SRI screening process also may apply other criteria as necessary in developing the “socially responsible” screens, including avoidance of owning companies that are involved in the production of controversial weapons such as cluster munitions, land mines, biochemical and nuclear weapons. The SRI screening process will periodically apply the customized SRI screening criteria to the Index and may remove a company’s stock from the list of Index stocks eligible for investment by the Fund if, after review, it is determined that the company has failed the screening process.

Although the Fund will refrain from holding stocks of companies contained in the Index but excluded by the SRI screening process, it will seek to perform consistently with the unscreened Index. To accomplish this objective, the Investment Manager uses index “sampling” techniques to select securities. Using sophisticated computer programs, the Investment Manager selects a representative sample of the securities that meet the SRI screening process that approximates the full Index in terms of key risk factors and other characteristics. These factors include price/earnings ratio, industry weights, country weights, market capitalisation, dividend yield, and other financial characteristics of stocks. The Investment Manager will attempt to minimise deviations in currency, country, and sector exposures as compared with that of the Index.

However, it is possible that, if a large Index constituent is excluded, there may be a lack of substitutes within the same country and sector, which would result in a potential mismatch of the Fund’s weighted holdings relative to the Index.

For more information on the potential implications of this strategy to investors please refer to the sections headed Index Tracking, Index Sampling Risk and Index Tracking Risk.