Vanguard Asset Management, with an eye toward the voracious demand for environmental, social and governance-focused investing, will launch its first U.S.-based corporate bond fund screened for these values, it said Thursday.
The exchange-traded fund will seek to mirror the Bloomberg Barclays MSCI US Corporate SRI Select Index. Vanguard, a Pennsylvania-based company with $5.7 trillion in assets, expects the new offering to be available in September. The fund’s expense ratio will be 12 basis points, which will be one of the highest rates among Vanguard’s U.S.-based fixed income funds.
Vanguard declined to comment on the fund’s expected rate of return. Its target index has risen steadily over the last five years, and has a 10.65% one-year return as of Wednesday.
The world’s largest mutual fund provider offers four other environmental, social and governance funds, three of which are indexed and one that is actively managed. Like the other three indexed funds, the new offering will exclude companies seen as harmful on a variety of measures, such as oil, tobacco and mining companies. It will not positively weight companies seen as doing good work on these measures, such as clean energy companies, according to Vanguard spokesperson Alyssa Thornton.
The new fund will overweight certain categories of investments to track its target index while accounting for the prohibition on certain investments.
Vanguard launched the first of its ESG funds, the Vanguard FTSE Social Index Fund, in 2000. It is the largest ETF fund in the U.S., with $7.9 billion in assets, according to the company. The next two funds came in 2018 and the fourth, and the first actively managed one, was launched in April of last year.
ESG funds have seen an ongoing surge in investor interest. These funds set a record with $10.7 billion in inflows in the first quarter of 2020, despite the tumult caused by COVID-19 in March, according to Morningstar. Fixed-income ESG funds reversed course, with outflows of $755 million in March, but still netted $664 million in inflows over the quarter.
“Investors continue to want to see their portfolios match their personal values,” Thornton said.
Fixed-income funds bounced back in the second quarter, after investors initially moved away from them at the onset of the COVID-19 pandemic.