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August 12, 2019 at 06:05 PM
What does a mutual fund or ETF mean when it labels itself ESG for its environmental, social and governance approach and what criteria does it use for including and excluding assets?
Definitions vary; they depend on the fund company and, if it’s a passive fund, on the index it tracks, and that can create problems.
Vanguard, which has three passive funds — two are ETFs — and one actively managed ESG mutual fund, emailed shareholders on Monday that multiple stocks were erroneously included in its ESG U.S. Stock (ESGV) and ESG International Stock (VSGX) ETFs as a result of the “screening methodology” used by the funds’ index provider, FTSE Russell, from June 21 until Aug. 5, but have since been removed.
Among the 11 erroneous holdings in the U.S. stock ESG ETF were gun maker Sturm, Ruger & Co. and oil services company Halliburton. Twenty stocks were erroneously included in the international ESG ETF, including GlaxoSmithKline and Gerdau PN, a South American steel producer.
“Vanguard took action as promptly as practicable to sell the stocks and align the funds’ holdings with the corrected index data,” according to spokeswoman. “Once the holdings reflected the corrected index data, Vanguard notified the funds’ shareholders via email.”
The spokeswoman noted that the stocks “In aggregate, these stocks represented a very small percentage of the holdings of the funds” and their inclusion and subsequent exclusion “had no material impact on the performance of the funds.”
FTSE Russell acknowledged the error, noting that “a small number of securities had been inadvertently included in the FTSE US All Cap Choice index and the FTSE Global All Cap ex US Choice Index at the June index rebalance. Once identified, the issue was rectified and clients informed of the constituent changes.”
