ESGV is Vanguard’s best performing ESG ETF. This passively managed exchange-traded fund has an incredible 38.5% return over the last year!
If you didn’t already see our last article going over Vanguard’s full ESG fund lineup then I recommend checking that out right here. The article today is going to build upon the last one and take a deeper dive into ESGV.
I started my journey researching ESG funds with Vanguard because Vanguard is best known for bringing passively managed index funds to the world. Vanguard was also the first brokerage I personally ever started investing with and I know a lot of you invest with Vanguard so I thought you would all get some valuable information from this article.
Full disclosure: I am a strong believer in ESG investing so I own ESGV in my personal portfolio.
ESG U.S. Stock ETF
ESGV is Vanguard’s ESG focused U.S. stock exchange-traded fund. I consider this fund the ESG equivalent of Vanguard’s Total Stock Market ETF, which is VTI.
There are definitely some differences between these two funds but both seek to track the U.S. stock market. ESGV just narrows this down by negatively screening out companies that do not meet the fund’s environmental, social, and governance criteria.
Vanguard only began offering ESG funds in 2018 so ESGV is still a relatively new addition to Vanguard’s total fund offerings. Even with ESGV being a relatively newer fund, it has a pretty impressive track record.
If you’re already here reading this article there’s probably a good chance that you’re interested in passively managed index funds. That is exactly what you get with ESGV. Vanguard’s ESG U.S. Stock ETF is made up of large, mid, and small-cap stocks and this fund’s goal is to track the FTSE US All Cap Choice Index.
FTSE is just the Financial Times Stock Exchange Group in case you were wondering. This group has created a variety of different indices that investment brokerages use in order to create and track their funds.
This might seem like a minor point but remember that you are not directly investing in an index. If you are investing in an index fund you are investing in a fund that seeks to copy a particular index.
The Goal of ESGV
The Vanguard ESG U.S. Stock ETF looks at the U.S. stock market and seeks to remove the companies that don’t meet the fund’s environmental, social, and governance criteria.
Here is what the Financial Times Stock Exchange Group has to say about the US All Cap Choice Index: “This index is designed to help investors align their values with their investment choices by selecting companies based on the impact of their products and conduct on society and the environment”
This index excludes companies involved in vice products like alcohol, gambling, adult entertainment, and tobacco.
It also excludes companies involved in non-renewable energy and weapons.
Other companies may also be removed from this index based on other risk factors like controversial conduct and poor gender and ethnic diversity practices.
The thing that is great about ESG investing is that it allows you to invest based on your own personal beliefs and values. You have the ability to choose a cause that you believe in and invest accordingly.
This fund is pretty broad and probably doesn’t fit the needs of everyone but no fund does that. I think ESGV is a great option for people who are interested in ESG investing but who would still like to passively invest in the U.S. stock market.
ESGV Fund Holdings
ESGV holds around 1,500 different stocks so I’m obviously not going to go over each stock individually. I did do some work for you so that you could get a picture of the top 50 stocks in this fund. These 50 stocks represent a little over 50% of the entire fund portfolio.
I ran each of these stocks through Sustainalytics and MSCI to analyze the ESG and risk ratings for each company. If you’re not familiar with MSCI and Sustainalytics, these two companies are two of the leaders in independent environmental, social, and governance investing research.
These companies offer some good free information so if you’re doing any analysis of individual stocks I’d recommend looking into these resources.
See the table below to get a picture of the major holdings within this fund as well as how each of these companies measures up according to environmental, social, and governance criteria.
Source: Vanguard, Sustainalytics, MSCI | Fund holdings change periodically so go directly to this fund’s portfolio page for the most up to date information.
All men (and women) are created equal but not all index funds are created equal. Passively managed index funds can have dramatically different fees depending on what fund you are looking at. Even funds that are very similar to one another could have very different fee structures so this is always something to watch out for.
That all being said I want you to try to keep an open mind for a moment. When I started my investing career my mentality was that nobody beats the market so my only goal was to track down the funds with the lowest fees and expense ratios.
I figured that if the end result was always the same then I just needed to find the cheapest fund out there.
My investing philosophy has changed a lot since I first started investing. It is still extremely important to consider fees and expense ratios when you make any investment. High fees can have an enormous impact on your returns over time. That being said, I no longer consider chasing the lowest fee funds to be my number one priority.
ESGV has a pretty low expense ratio at just 0.12%. You can definitely find other index funds out there with lower fees but keep in mind that 0.12% is still a low expense ratio. Remember that not all that long ago fees over 1% were the industry standard.
I’m sorry if I’m rambling on about this a little bit but I really wanted to make this point because I recently watched a video by another personal finance YouTuber and the entire focus of the video was just finding the lowest fee funds. He talked as if “lowest fees” equal “best investments” and I wanted to make sure you didn’t fall into this trap because only a few years ago I spent a lot of time trying to chase down funds with the lowest fees.
Just don’t become so focused on fees that you forget about everything else, including performance. And performance is exactly what we’ll talk about next.
Let’s get to the part you’ve all been waiting for. ESGV has a 38.52% rate of return over the last year. By comparison, Vanguard’s S&P 500 ETF has a 31.4% rate of return over the same period of time. That’s a difference of over 7%.
Vanguard’s ESG ETF beat the S&P 500 by 7%!
Of course, the market is constantly moving so these numbers will change often. I know a lot of people use the S&P 500 as a benchmark for their own investments but I also wanted to compare ESGV to Vanguard’s total stock market ETF since I think these two funds are closer in similarity.
I’m also going to look at Vanguard’s quarterly reports here since, again the price of these funds are always changing. Based on the last quarterly report, Vanguard’s ESG ETF outperformed Vanguard’s total stock market ETF by 4.7%
Some of you may be thinking that a 4.7% difference is pretty insignificant but over a lifetime of investing, 4.7% could mean a difference of millions of dollars.
The current maximum contribution for an individual retirement account is $6,000 per year. If you invest $6,000 each year for 30 years, assuming a 10% annual return, you will end up with over 1 million dollars in your account.
However, if you are able to make an additional 4.7% return each year then your account balance at the end of 30 years would be over 2.8 million dollars. That is more than double the return from just a 4.7% difference in performance. That is an additional 1.7 million dollars in your account at the end of 30 years.
1.7 million dollars could be the difference between spending your retirement living comfortably or having to constantly worry about money.
ESG Beats the Market
It always needs to be said. Past performance is no guarantee of future results. But the advantage of ESG investing is that this investing style looks for risk factors that may not be identified with traditional investment analysis.
This allows for funds like ESGV to be built from some of the strongest companies that make up the stock market. This is why I believe in ESG investing and why I think ESG investment analysis is going to be the norm within just the next very years.
Vanguard’s ESGV fund gives you the opportunity to incorporate your personal values into your investing decisions. But remember that only you can decide what investments are right for you.
What about you? What are some of your favorite ESG focused funds? Tell us in the comments below!