Vanguard reopens Dividend Growth mutual fund, redefines ESG portfolio definition

Vanguard reopened its popular Vanguard Dividend Growth mutual fund to new investors, according to filings with regulators, and also redefined the screens for its popular ESG mutual funds, which offer environmental, social, and governance-conscious portfolios.

Dividend Growth (VDIGX) closed to new investors three years ago when it was $31.5 billion in size. Today the fund boasts $36.6 billion in assets and is “now open to all new investors,” the firm told the Securities and Exchange Commission in an Aug. 1 filing.

Dividend Growth invests primarily in stocks that tend to offer current dividends and focuses on high-quality companies that have prospects for strong long-term total returns as a result of their ability to grow earnings and their willingness to increase dividends over time. These stocks typically — although not always — are large-cap companies.

The fund’s return after taxes totaled 10.14% on average annually over the last 10 years ending in 2018.

Wellington Management is the portfolio’s manager and Donald Kilbride, senior managing director and equity portfolio manager of Wellington Management, has managed the portfolio since 2006.

“Dividend Growth has been one of the best active funds in Vanguard’s stable with a single fund manager, Don Kilbride, guiding its performance," said Dan Wiener, editor of the Independent Adviser for Vanguard Investors newsletter. His clients hold roughly $675 million in Dividend Growth. "Over the past three years its 47.4% return bested that of its index equivalent, Dividend Appreciation Index as well as 500 Index and Total Stock Market Index.”

“My one fear is that Vanguard could add a second manager to the fund. If they do that, then all bets are off.”

Vanguard has refined what it means when it says ESG U.S. Stock ETF (ESGV) and ESG International Stock ETF (VSGX) “exclude” stocks in the fossil fuels and other industries.

We’ve noted back in May how investors were surprised to find oil and gas companies in their environmental, social, and governance-oriented funds.

Here’s how Vanguard has updated its old ESG fund language, listed under “principal investment strategies”. Previously, the fund language said:

"The Fund employs an indexing investment approach designed to track the performance of the FTSE US All Cap Choice Index. The Index, which is market-capitalization weighted, is composed of large-, mid-, and small-cap stocks of companies located in the United States and is screened for certain environmental, social, and corporate governance (ESG) criteria by the Index sponsor, which is independent of Vanguard.

“Specifically, the Index excludes stocks of companies in the following industries: adult entertainment, alcohol and tobacco, weapons, fossil fuels, gambling, and nuclear power. The index methodology also excludes the stocks of companies that do not meet the labor, human rights, environmental, and anti-corruption standards as defined by the United Nations Global Compact Principles , as well as companies that do not meet certain diversity criteria.”

And here’s the new language with a lot more refinement:

“The FTSE US All Cap Choice Index excludes stocks of companies that FTSE Group determines engage in the following activities: (i) companies that produce adult entertainment; (ii) companies that produce alcoholic beverages; (iii) companies that produce tobacco products; (iv) companies that (a) produce or (b) produce specific and critical parts or services for, nuclear weapon systems, chemical or biological weapons, cluster munitions, and anti-personnel mines; (v) companies that produce other weapons for military use; (vi) companies that produce firearms or ammunition for non-military use; (vii) companies that own proved or probable reserves in coal, oil, or gas; (viii) companies that provide gambling services; and (ix) companies that generate revenues from nuclear power production or related activities (including equipment, construction, and uranium). The index methodology also excludes the stocks of companies that, as FTSE Group determines, do not meet the labor, human rights, environmental, and anti-corruption standards as defined by the United Nations Global Compact Principles, as well as companies that do not meet certain diversity criteria.”