Undesirables to be removed from Vanguard fund

Vanguard has bowed to pressure and is about offer an international index fund which screens out so-called nasties including companies involved the tobacco, controversial weapons and nuclear weapons sectors.

Friday, October 28th 2016, 6:00AM

Robin Bowerman

The fund is for institutional investors, specifically KiwiSaver funds, and has come about after recent media scrutiny about where New Zealand fund managers are investing.

Vanguard Australia Head of Market Strategy, Robin Bowerman, says he expects New Zealand funds to transfer between $300 million to $500 million into the fund.

He says this is sufficient to meet critical mass to make the fund viable.

“We are confident it will work in the long term,” he said. “We think it is a sustainable product.”

Some KiwiSaver providers may give their members the option of using the Exclusions Fund or the current one which isn’t screen.

Although performance of the new fund has been back-tested, Bowerman would just say the new fund would have a tracking error of between 0.20 and 0.25% versus the MSCI World ex-Australia Index.

The creation of the new fund also led to a review of fees. The Exclusions fund carries a management fee of 26 basis points.

The old fund will see its management fee reduce from 31 to 24 points. The new fund is slightly higher because of the additional costs of running the screening process.

The screening will be done by MSCI and is on a basic exclusion basis rather than a Responsible Investing approach taking into account ESG factors.

Bowerman says Vanguard consulted with its New Zealand institutional clients “to ensure it met their needs regarding specific exclusions, in addition to ensuring it met Vanguard’s long standing index construction best practices.”

The company had “slated for development” an Exclusions Funds next year, but brought this forward as “people weren’t prepared to wait that long.”

The Exclusions fund will provide investors with exposure to more than 1564 listed companies across 20 developed international markets (excluding Australia). This is 23 fewer than the current fund.

The Vanguard International Shares Select Exclusions Index Fund is fully hedged.

Tags: KiwiSaver responsible investing