Explore the impact of ESG (Environmental, Social, and Governance) considerations on the performance of popular global share funds – Foundation Series TWF (VT), Simplicity Global Share, and Kernel Global ESG.
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“Hi everyone,
I’ve been meaning to switch my Mercer All Country Global Shares Fund to one of the more popular, cheaper ones that have popped up. Specifically looking at a) Foundation Series TWF, b) Simplicity Global Share, or c) Kernel Global ESG.
These funds and their underlying taxes, fees etc. have already been covered in detail on this Forum, but I wanted to specifically ask about the differences between the indexes that each they track, and the impact of ESG on their performance.
The Foundation Series TWF is easiest to understand, it’s simply VT.
The Kernel and Simplicity funds are more complicated though because of their ESG screenings I feel. ESG is nice to have, but I wonder how much (if any) it would affect their performance, or cause them to deviate from the original market index they are supposed to track? To give one example, Simplicity Global Shares doesn’t seem to invest in Amazon when I looked, does this kind of screening not cause it to significantly stray (either up or down) from the index it tracks?
Perhaps another way to ask is assuming these three funds were 100% identical in fees, tax issues, etc., which would you go for and why?”
(Original question on Reddit)
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Choosing the right investment fund, especially when considering factors like ESG (Environmental, Social, and Governance) impact on performance, is an important decision. Let’s break down your question and assess the impact of ESG on the performance of these popular global share funds: Foundation Series TWF, Simplicity Global Share, and Kernel Global ESG.
Foundation Series TWF (VT):
Foundation Series TWF tracks the VT (Vanguard Total World Stock) index, which represents a broad global market.
VT does not incorporate specific ESG screening, so it includes companies that might not meet ESG criteria.
In the absence of ESG screening, VT might include companies that are not as ESG-friendly, potentially affecting its ESG performance.
Simplicity Global Share:
Simplicity Global Share incorporates ESG screening and may exclude companies that do not meet its ESG criteria.
Excluding certain companies can lead to a fund that is more aligned with ESG principles.
However, by excluding some companies, Simplicity may not perfectly track the broad market, leading to potential deviations in performance.
Kernel Global ESG:
Kernel Global ESG, as the name suggests, explicitly focuses on ESG criteria in its investment strategy.
This fund is designed to include companies that meet certain ESG standards, which may result in better ESG performance.
However, similar to Simplicity, the focus on ESG may cause it to deviate from the broader market index it aims to track.
When assessing the impact of ESG on the performance of these funds, it’s important to consider your own investment goals and values:
If ESG is a top priority for you and you want to invest in a way that aligns with your values, Simplicity Global Share or Kernel Global ESG might be the better choice.
If your primary focus is on tracking the broad global market and you are less concerned about ESG considerations, Foundation Series TWF (VT) may be more suitable.
Regarding your hypothetical scenario where these three funds are identical in fees and tax issues, the choice would still depend on your personal ESG preferences and your willingness to accept potential deviations from the broad market index. Keep in mind that ESG-focused funds may perform differently than non-ESG funds, and their performance can vary over time.
Ultimately, you should consider your investment goals, risk tolerance, and values when making a decision. It may also be beneficial to consult with a financial advisor to determine which fund aligns best with your financial objectives and ethical considerations.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
