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Welcome to ETF UNO, your trusted source for ETF investing insights! In today's newsletter, we're exploring socially responsible investing with a focus on the Vanguard ESG U.S. Stock ETF (ESGV). This article will provide an overview of ESGV, including its performance and potential risks. Whether new to ESG investing or seeking to diversify your portfolio, ESGV presents an exciting opportunity to align your investments with your values while potentially earning solid returns.

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What is ESGV?

The ESGV ETF is offered by Vanguard, one of the world's most reputable and well-known investment management companies. ESGV focuses on providing exposure to U.S. stocks that meet specific Environmental, Social, and Governance (ESG) criteria. This ETF is an excellent choice for investors who want to align their investments with their values without sacrificing the potential for competitive returns. It is especially appealing to those who prioritize socially responsible investing and want a broadly diversified, low-cost investment vehicle.

What Makes ESGV Different?🤔

ESGV is an equity ETF that aims to track the performance of the FTSE US All Cap Choice Index. This index is designed to reflect the performance of U.S. stocks with high ESG ratings. By following this index, ESGV exposes investors to a wide range of U.S. companies of all sizes screened for various ESG factors.

The FTSE US All Cap Choice Index, which ESGV follows, applies a rigorous set of criteria to ensure the companies included meet the high standards of ESG investing.

• 🌍Environmental: Excludes companies with significant involvement in fossil fuels, environmental controversies, or poor environmental performance.

• 🤝Social: Avoids companies involved in controversial weapons, tobacco, or those that violate labour rights.

• ⚖️Governance: Screens out companies with poor corporate governance practices, including lack of board diversity and involvement in corruption scandals.

• ➕Additional Factors: Excludes companies that don't meet UN Global Compact principles and avoids businesses involved in adult entertainment or gambling

These criteria shield investors, helping them exclude companies that may pose ethical or sustainability risks and ensuring a portfolio that reflects their values.

Understanding ESG Investing Risk⚠️

ESG investing has gained popularity, but it's essential to consider the potential risks. ESG investing risk could impact the financial performance of stocks chosen based on ESG criteria, causing them to underperform the broader stock market or other ESG funds.

Here's a deeper look at this risk:

• Performance Variability: ESG-focused funds may exclude specific sectors or companies, leading to performance different from the broader market.

• Subjective Criteria: Varying definitions of good ESG practices could lead to inconsistent performance across different ESG funds.

• Limited Investment Universe: Excluding certain companies or sectors limits diversification and affects returns.

• Evolving Standards: Changes in ESG criteria could lead to increased turnover in fund holdings.

• Data Quality and Availability: Inconsistent ESG data could impact fund performance, especially for smaller companies.

• Potential for Higher Costs: Some ESG funds may have higher expenses due to additional research and screening.

• Regulatory Changes: Regulatory scrutiny could affect how ESG funds operate and their performance.

While ESG investing supports responsible practices, it doesn't guarantee superior financial performance. Consider your financial goals, risk tolerance, and values before investing in ESG-focused funds.

ESGV at a glance

ETF Issuer: Vanguard

Inception: 18/09/2018

Asset Class: Equity

Underlying Index: FTSE US All Cap Choice Index

Geographical Focus: U.S. (with global exposure)

Expense Ratio: 0.09% (as of last data point)

Dividend Yield: 1.15% (as of last data point)

Distribution Frequency: Quarterly

Historical Performance

Now, let's look at how ESGV has actually performed since its inception. ESGV was launched on September 18, 2018, so it has a relatively short track record. However, its performance has been promising:

• Since Inception: ESGV has delivered an annualised return of approximately 13.5%.

• Recent Performance: In YTD 2024, ESGV returned about 14.2%.

• Volatility: ESGV's volatility has been roughly in line with the broader U.S. stock market, suggesting it doesn't add significant additional risk compared to non-ESG funds.

These figures demonstrate that ESGV has managed to deliver competitive returns while adhering to ESG principles.

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest

1. Ethical Investment: ESGV offers a way to invest in companies making positive contributions to society and the environment. This alignment can provide a sense of satisfaction, knowing that your investments reflect your personal values.

2. Potential for Long-Term Growth: Companies with strong ESG practices may be better positioned for long-term success. They often have more sustainable business models and better risk management and may be less likely to face regulatory issues or public controversies.

3. Low Costs and Vanguard's Reputation: With an expense ratio of just 0.09%, ESGV is one of the most cost-effective ESG ETFs available. This low fee means more investment goes toward actual market returns rather than fund expenses. Additionally, Vanguard's reputation for investor-friendly practices and index fund management expertise adds more confidence for investors.

Top 3 Reasons Not to Invest

1. Limited Sector Exposure: Due to its ESG screening process, ESGV excludes entire sectors, such as fossil fuels. While this aligns with ESG principles, you might miss potential gains in these sectors.

2. Underperformance Risk: As highlighted in the ESG investing risk section, stocks selected based on ESG criteria might underperform the broader market. Suppose your primary goal is to maximise returns without considering other factors. In that case, a non-ESG fund might be more suitable for you.

3. Evolving ESG Standards: ESG investing is still developing, and standards can change over time. What's considered an ESG-friendly company today might not meet the criteria in the future.

🌱Investing with a Conscience

As we wrap up our exploration of the ESGV ETF, it offers an intriguing option for investors looking to align their portfolios with their values. Ultimately, whether ESGV is right depends on your financial goals, risk tolerance, and how vital ESG factors are in your investment decisions. As with any investment, it's crucial to research and consider how ESGV fits into your overall financial strategy.

Join the ETF UNO community for more valuable insights and information on ETF investing. Our newsletter updates market trends, new ETF offerings, and in-depth analyses like this one. By continuing to educate yourself about ETFs, you'll be better prepared to navigate the ever-changing investment landscape and work towards your financial goals. Keep learning, stay curious, and happy investing!

DISCLAIMER: The information in this article is for educational purposes and should not be taken as investment advice. Investors should conduct their own research or consult a financial advisor before making investment decisions.