Simplicity is to update disclosure documents following an index screening mishap in an underlying Vanguard global bond fund that likely leaves investors exposed to some controversial holdings.
In a February note to investors in the Ethically Conscious Global Aggregate Bond Index Fund, Vanguard says it “recently discovered that some entity structures, including non-listed companies, are not excluded by the screens applied by the index provider [Bloomberg Barclays/MSCI]”.
“As a consequence, we have updated this index information whilst we continue to investigate the level of exposure the Fund has to securities with ties to fossil fuels, nuclear power, alcohol, tobacco, gambling, weapons and adult entertainment,” the Vanguard note says.
According to the investor update, the index-screening process “does not review government bonds, securitised fixed rate bonds and some company structures, particularly government related corporations and non-listed companies”.
The Australian-domiciled global fixed income index product has pulled in about $1 billion into its NZ dollar hedged version used by the likes of Simplicity and Booster.
Sam Stubbs, Simplicity founder, said the oversight “appears to have been by error rather than intent, and impacts less than 0.10% of the holdings in the fund”.
“Materially this is minor, and we will amend documentation when we have more detail next week,” Stubbs said. “Either way, the principle matters. Vanguard agrees.”
He said the issue could be resolved in a number of ways such as broadening the exclusion process, changing the index “or if neither is possible, ongoing disclosure”.
Launched in 2018, the Vanguard Ethically Conscious Global Aggregate Bond Index Fund invests in about 4,500 underlying securities selected in a joint benchmark managed by MSCI and Bloomberg Barclays.
The fund is largely supported by NZ investors with the Australian dollar hedged version reporting about A$160 million under management and the exchange-traded fund (ETF) option sitting close to A$50 million as at the end of January this year.