Vanguard launched a new ESG ETF in March – the Vanguard ESG Global All Cap UCITS ETF, an accumulating, Ireland-domiciled ETF that’s listed on the London Stock Exchange similar to its sibling VWRA.
Frequent readers will know how much I love VWRA, I even dedicated a full post talking about it and why it is 80% of my DIY stock portfolio, the other 20% is in REITs because I also like passive income from collecting rent.
V3AA is basically VWRA with ESG characteristics. It takes a passive investment approach with an indexing strategy, and seeks to track the performance of the FTSE Global All Cap Choice Index.
The FTSE Global All Cap Choice Index is a market-capitalisation-weighted index composed of large, mid, and small-cap stocks of companies located in markets around the world – hence the name all-cap.
It is constructed from the FTSE Global All Cap Index which is then screened for certain environmental, social, and corporate governance criteria by the sponsor of the Index.
Here’s how the screening process works:
The FTSE Global All Cap Choice Index measures the performance of the FTSE Global All Cap Index after excluding companies involved in Vice Products (Adult Entertainment, Alcohol, Gambling, Tobacco), Non-Renewable Energy (Nuclear Power, Fossil Fuels), and Weapons (Chemical & Biological Weapons, Cluster Munitions, Anti-Personnel Landmines, Nuclear Weapons, Civilian Firearms, and Conventional Military Weapons).FTSE Russell
Since the Vanguard ESG Global All Cap UCITS ETF tracks the FTSE Global All Cap Choice Index, investing in this ETF means you are investing in a diversified broad market portfolio from developed and developing countries, across small, mid and large sizes, with ESG screening criteria applied.
Now that gets me excited – because Vanguard has took my favourite ETF and made it even better by excluding countries that do not meet good governance standards or have poor social and environmental considerations.
Here are some quick facts about V3AA taken from the factsheet:
Some facts to highlight here:
- It’s domiciled in London with a UCITS structure so it’s tax optimised for Singaporeans
- It’s managed by Vanguard with annual total expense ratio (TER) of 0.24%
- Dividends are accumulated instead of distributed
Comparing it to VWRA, the main differences are:
- VWRA does not include small-cap stocks
- VWRA is slightly cheaper with a slightly lower TER of 0.22%
What about the returns?
Since V3AA is a new ETF with limited historical data, let’s turn to the index to see how the index performed, as a fund tracking the index would have similar returns.
Looking at the chart above, it’s clear that the FTSE Global All Cap Choice Index has outperformed in recent times, given how ESG is forming a key investment consideration in many investors’ portfolio.
Even during periods of decline, it has declined at a similar rate as the FTSE Global All Cap Index, meaning that it actually exhibits better risk reward characteristics!
However, one thing to be mindful is the huge bid-ask spreads (~0.38%) on this ETF as it’s relatively new with low trading volumes. While liquidity shouldn’t be a cause for concern over the long-term, since ETF units can be also created and redeemed on the primary market in addition to being traded over the secondary market (i.e. exchange), frequent buys and sells of V3AA can eat into your returns.
With its low cost, globally diversified profile, all-cap inclusion, ESG screening, outperformance against its rival, V3AA is clearly the superior ETF of the two, and has gotten the Betterspider stamp of approval and earned itself a spot in my DIY portfolio.