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ESGV: Understanding Vanguard ESG U.S. Stock ETF

ESGV is one of Vanguard’s leading ESG ETF investment options. ESG, which stands for Environment, Social, and Governance, attempts to invest in socially and environmentally responsible companies with responsible corporate governance.

ESGV is only one of several ESG options offered by Vanguard, not to mention one of many ESG investment options offered in the entire market.

Is ESGV a good investment option for you?

Read on to find out.

 

What is ESGV?

ESGV, or the Vanguard ESG U.S. Stock ETF, is an exchange-traded fund offered by Vanguard that tracks the performance of the FTSE US All Cap Choice Index.

The FTSE US ALL Cap Index represents the performance of the U.S. large, mid, and small-cap stocks and covers 98% of the world’s investable market capitalization. The fund is passively managed and replicates the index funds’ diversification.

ESGV is an ETF, which means it’s traded on an exchange throughout the day, unlike mutual funds, which are only traded when the market is closed. ETF’s price will also fluctuate throughout the day, while mutual fund prices change at the close of the business day.

Another key feature that makes ESGV stand out is that you can invest in socially responsible companies. It excludes stocks from certain industries, such as adult entertainment, alcohol, tobacco, cannabis, coal, oil, and gas, to name a few.

In addition, the ESGV fund does not invest in certain companies that don’t meet certain labor, human rights, environmental, and anti-corruption standards as defined by the UN Global Compact Principles.

 

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ESGV ETF: Key Features

ESGV
Date of Inception2018
Asset Class ETF
Management StyleIndex
Investment Style Blended Large Market Cap
RiskModerate to Aggressive
Expense Ratio0.09%
Number of Holdings1,469
Median Market Cap$148.9 B
Total Net Assets (09/30/2023)$6.4 B

 

ESGV vs Other Vanguard ESG Offerings:

ESGV has the lowest expense ratio compared to all the other investment options. It is, at minimum, 0.03% cheaper than any other investment option. It also has a higher SEC yield, which means it’s expected to generate a higher yield over 12 months at the current returns than the other ETF ESG fund Vanguard offers.

That said, ESGV has the highest market price compared to other ESG investment options.

 

Fund NameExpense Ratio7-day SEC YieldInvestment TypeMinimum Investment
Market Price (10/20/2023)

Holdings
ESGV – Vanguard ESG U.S Stock ETF 0.09%1.29%ETF$1$73.871,469

VFTAX – Vanguard FTSE Social Index Fund
0.14%1.20%Mutual Fund $3,000$39.55468
VSGX – Vanguard ESG International Stock ETF

0.12%ETF$1$48.756,029
VCEB – Vanguard ESG U.S. Corporate Bond ETF0.12%5.98%ETF$1$57.962,605

 

EGV Portfolio Composition

ESGV tracks the performance of the FTSE U.S. All Cap Index Fund, which includes small, mid, and large-cap market capitalization stocks.

Let’s examine ESGV portfolio distribution by industry. Using the data in the table below, we can see that the industry composition of ESGV closely resembles the overall industry based on market capitalization.

 

IndustryESGV
Information Technology35.20
Consumer Discretionary16.10%
Health Care14.20%
Industrials10.80%`
Financials10.20%
Consumer Staples5.20%
Real Estate3.20%
Telecommunications2.70%
Basic Materials1.70%
Utilities0.50%
Energy0.20%

Next, let’s examine ESGV’s top 10 holdings.

The table below shows that ESGV’s top 10 holdings reflect the ten largest companies in the U.S. stock market. The top 10 holdings account for 31.52% of the portfolio, similar to the U.S. stock market.

 

CompanyESGV
Apple Inc.7.45%
Microsoft Corp.6.85%
Amazon.com Inc.3.34%
NVIDIA Corp3.01%
Alphabet Inc. A2.13%
Alphabet Inc Class C2.10%
Tesla Inc C2.01%
Meta Platforms Inc Class A1.94%
UnitedHealth Group Inc1.37%
Eli Lily and Co1.32%
Total31.52%

 

ESGV Performance

 

Next, let’s take a look at ESGV’s overall performance. Below, we’ll examine its total annual returns, cumulative annual returns, and dividend yield.

The table below demonstrates ESGV’s total returns by market price over the last several years for ESGV. Remember that ESGV is a relatively new mutual fund with a limited performance record.

 

Total Returns by NAV
YearESGVBenchmarkDifference
2022-24.02%-23.99%-0.03%
202126.41%26.54%-0.13%
202025.71%25.84%-0.13%
201933.40%33.53%-0.13%
2018-13.76

With only four full years of operation, ESGV has performed within 0.13% of its benchmark the FTSE US All Cap Choice Index, in all four years.

Below, we can see ESGV has also performed in line with the benchmark over cumulative periods. Over 1 year, ESGV only underperformed the benchmark index by 0.08%; over a 5-year period, ESGV was just 0.70% below the benchmark’s performance.

As the fund matures, these cumulative performance differences are likely to decrease.

 

Cumulative Returns by NAV
YearESGVBenchmarkDifference
1-Yr21.32%21.40%-0.08%
3-Yr26.13%26.41%-0.28%
5-Yr59.63%60.33%-0.70%

Next, using the table below, let’s examine ESGV’s average dividend yield over the last four years. The data shows that since the inception of the ETF, the dividend yield has been increasing steadily.

 

YearESGV
20231.28%
20221.21%
20211.00%
20201.37%
20190.69%

Pros of ESGV

 

Investing Responsibly

ESGV invests in companies that follow the ESG principles of environmental, social, and governance. This means that ESGV considers a company’s environmental, social, and corporate governance impact before investing. The goal is to influence change by being a more responsible investor.

Following the ESG principles, ESGV invests in companies prioritizing their environmental impact. They invest in socially conscious companies, including promoting diversity, equal pay, employee benefits, and working conditions. Finally, ESGV values companies with strong corporate governance to ensure that the company is analyzing risks, monitoring compliance, and promoting and ensuring ethical working conditions.

The fund does not invest in companies that may conflict with these values, including adult entertainment, alcohol, tobacco, cannabis, coal, oil, and gas, to name a few.

In addition, the ESGV fund does not invest in companies that don’t meet certain labor, environmental, human rights, and anti-corruption standards as defined by the UN Global Compact Principles.

 

More Trading and Liquidity

As an ETF, ESGV can be traded daily while the market is open. This makes ESGV more tradable and liquid than mutual fund alternatives.

One drawback of trading ETFs is that they typically trade at prices slightly different from their Net Asset Value (NAV). The difference is also known as bid-ask spread). When trading ESGV throughout the day, you will likely pay a premium compared to the actual market value.

 

Tax Efficiency

Generally, if you hold the assets in tax-deferred or non-taxable accounts (such as IRAs), ETFs will have a slight edge compared to mutual funds from a tax efficiency perspective. This is mainly due to the internal workings of ETFs compared to mutual funds. ETFs tend to distribute fewer capital gains to shareholders.

 

Cons of ESGV

 

Vetting Mechanism Isn’t Perfect

The ESGV mechanism for ensuring that companies follow the ESG principles is imperfect.

Since the fund is passively managed and uses a full-replication approach of the FTSE US All Cap Choice Index, you have little control over what stocks make it into the fund. As such, it’s likely that some companies that are not aligned with your values will make it into the ESG fund.

Tax Loss Harvesting

As an ETF, there are certain tax-loss harvesting advantages that ESGV does not offer.

With ETFs, you must wait for the funds to settle before you can reinvest those funds. With most accounts, you must wait two days after the order is executed, commonly called T+2.

On the other hand, with mutual funds, you can re-invest funds that same day, and there is no waiting period.

 

Risk Profile / Minimal History

While ESGV has the potential for a larger return, it poses a relatively higher risk than investing in the S&P 500 or a large blend stock index. The main reason is that ESGV invests in large, medium, and small-cap companies while excluding many companies that don’t meet their ESG standards.

ESGV is also relatively new compared to many other ETFs and mutual funds. Many ETFs have over ten years of historical performance, such as VTSAX, while ESGV only has four.

 

Final Thoughts

ESGV is an ETF ESG offered by Vanguard.

ESGV invests in companies that put a priority on their ESG principles. These principles are environmental, social, and corporate governance, allowing investors to invest in companies that align with their values.

ESGV is also a great way to invest in a diversified portfolio that tracks the performance of the well-known FTSE US All Cap Choice Index. In addition to its diversified portfolio and ESG ethics investing, ESGV offers low expense ratios and investment minimums.

When investing, be aware that ESGV’s mechanism for ensuring that companies follow the ESG principles is imperfect and that some companies that are not aligned with your values will make it into the ESG fund.

Further, while ESGV has the potential for a larger return, it poses a relatively higher risk than investing in the S&P 500 or a large blend stock index.

Overall, ESGV is a great choice for investors looking to invest in stocks and companies that are socially responsible without hand-picking stocks.

 



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3 thoughts on “ESGV: Understanding Vanguard ESG U.S. Stock ETF”

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