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Market Update

Vanguard Heats Up Competition with New Social Index Fund

Watch out, Citizens and Domini. There's going to be a lot more competition soon.

The Vanguard Group, the firm that has long been the standard bearer for low-cost mutual funds, is adding a socially responsible index offering to its lineup.

Vanguard announced today that it is preparing to file a registration statement with the SEC for the Vanguard Calvert Social Index Fund. The fund will track the new Calvert Social Index.

Although there was no immediate information about how expensive the new fund would be, there is every reason to believe that its expense ratio will be low.

The announcement from Vanguard follows on the heels of TIAA-CREF's disclosure earlier this week that they are also looking to offer a low-cost socially responsible fund.

TIAA-CREF and Vanguard's new offerings could provide some much-needed competition in the SRI community. According to a recent
study, Morningstar found that, on average, socially conscious funds charge15% more than their average category peer.

Vanguard's entrance into the SRI arena also demonstrates the increasing prevalence of socially responsible investing. For years, socially responsible investing was dismissed as an inferior way to manage money. But the financial success of funds such as Domini Social Equity (DSEFX) and Citizens Index (WAIDX) has gone a long way to disproving the theory that investors automatically compromise returns when they invest according to their values.

Over the past decade the number of SRI funds has grown, but most of these funds are offered by small specialty SRI shops rather than industry giants such as Fidelity and Putnam. With Vanguard and TIAA-CREF entering the arena, it appears that socially responsible investing has finally come of age.