Vanguard ESG index fund recommendations

mothemoneysaver

Hi,

I would like to put a small amount of money with regular investments into a stock and share ISA as a long term investment.

I currently have an account with interactive investor on their quick-start ethical portfolio (CT sustainable growth) but because of their fees, and the small amount of money in my investment, I wanted to transfer to a Vanguard low cost index fund which has lower platform fees. I would like an ESG fund with exclusion of vice stocks.

I was considering:

ESG Developed World All Cap Equity Index Fund

It has an ocf of 0.2% and tracks the FTSE developed all cap. Benefits are the low cost, but I suppose it doesn't have any exposure to emerging markets. I could buy 10% of my portfolio in their ESG emerging markets fund but don't want to complicate things.

My alternative would be their Global Sustainable Equity Fund or one of the SustainableLife funds, but these seem to be active and with a higher OCF of 0.48%, which I am not sure would justify the returns.

Any thoughts? Particularly, do people feel some emerging markets exposure is necessary in a portfolio, or would tracking the FTSE developed all cap be a reasonable single index fund in a portfolio?

dunstonh

My alternative would be their Global Sustainable Equity Fund or one of the SustainableLife funds, but these seem to be active and with a higher OCF of 0.48%, which I am not sure would justify the returns.

i admire you putting your money where your mouth is.   Many people like the idea of ESG until they realise it means lower returns and then they change their mind.

Some degree of active is likely to be needed if you want true ESG.  Indeed, you are making active decisions on how you build your asset/sector allocation

Any thoughts? Particularly, do people feel some emerging markets exposure is necessary in a portfolio, or would tracking the FTSE developed all cap be a reasonable single index fund in a portfolio?

Without emerging markets you are likely further handicapping your long term returns.

JohnWinder

‘Without emerging markets you are likely further handicapping your long term returns’

The data I see doesn’t indicate that, quite the opposite. Portfoliovisualizer has 29 years of comparing developed with emerging markets, and the emerging markets had lower returns with more volatility (risk). There have been periods within that 29 years when one beat the other, and there’s no certainty that future returns will copy past returns, but I don’t think we can say you are likely hampering returns without emerging markets equity.

I don’t think having EM stocks is at all necessary, particularly as those funds are more expensive and simplicity of portfolio has some merit.

‘My alternative would be their Global Sustainable Equity Fund or one of the SustainableLife funds, but these seem to be active and with a higher OCF of 0.48%’

Firstly, Vanguard says it’s ‘active’, so there’s no ‘seems to be’ about it.  You’d lose the overall advantage of index tracking over active (and be charged more). Secondly, Vanguard does not indicate that there’s no vice in that fund, only that it excludes nuclear etc. Did you read that about it? As far as you’re concerned it seems to have little going for it. Their ESG fund is explicitly no vice.

‘Some degree of active is likely to be needed if you want true ESG.  Indeed, you are making active decisions on how you build your asset/sector allocation’

A couple of issues here. We need to distinguish between ‘active’ as in stock picking compared with ‘passive’ as in tracking an index, and between ‘active’ as in making personal decisions about how much you will have in stocks vs bonds, and ‘passive’ as in holding a portfolio of stocks and bonds which represents the global distribution of money invested in stocks and bonds.

Of course it’s sensible to be ‘active’ in choosing the mix of stocks vs bonds to suit your circumstances, rather than just copying the global distribution of money in stocks and bonds (even though that is theoretically sensible - see William Sharpe’s Nobel prize work). But that doesn’t make it sensible to be ‘active’ in stock selection, nor does it mean you are being inconsistent in implementing your values by being ‘active’ in asset allocation but ‘passive’ in index tracking. We need to be careful we don’t send people on a guilt trip they shouldn’t be on.

Yes, there is stock picking with ESG, which makes it ‘active’ if you wish to call it that; but we can still have ESG with index tracking. The advantage of ESG or any other index tracking is that it largely removes the managers’ discretion when it comes to picking stocks; they follow the index, we know the rules that are used to construct the index, and we know how the fund will perform (if we have enough history of the index being used by funds). It becomes lower cost and there’s no ‘manager risk’ involved. 

Bostonerimus1

OP, any of the funds mentioned above will be just fine. I'd be biased to the most inexpensive fund, but the most important thing is you are saving and investing. Don't bother about us financial geeks and nerds arguing the finer points of various funds, just contribute regularly and maintain a long term perspective and don't keep looking at your balance too often or panic if you see it go down for a time.

silvercue

You may find Iweb even cheaper if the reason for the move is to reduce fees

shortseller09

Have you considered ETFs?

Vanguard ESG Global All Cap is 10% emerging markets

V3AB (Acc) or V3AM (Inc).

Slightly more expensive at 0.24%.

InvesterJones

While not a specific recommendation to use their platform, Fidelity have a sustainable investment finder which anyone can use to filter funds on a number of factors. The resulting funds will of course be available on their platform, but likely other platforms as well so once you've found something suitable you can go where you like.
https://www.fidelity.co.uk/investing-esg/sustainable-investment-finder/

Beddie

silvercue said:

You may find Iweb even cheaper if the reason for the move is to reduce fees

Not for regular investing though - £5 a time. 

ZeroSum

shortseller09 said:

Have you considered ETFs?

Vanguard ESG Global All Cap is 10% emerging markets

V3AB (Acc) or V3AM (Inc).

Slightly more expensive at 0.24%.

Or if you put the effort in, you could effectively create the global all cap ESG yourself by putting in the various % splits of the regional versions, and end paying closer to 0.15%

mothemoneysaver

Thanks for all the helpful comments. Much appreciated.

dunstonh

Does it have to be ESG or would SRI be just as good?