Sustainable Bottom Line: Vanguard reduces fees on the largest focused sustainable index fund, a strong potential core holding candidate in diversified sustainable and/or conventional portfolios.
Notes of Explanation: Lowest expense ratios=funds with expense ratios below 0.1%. Vanguard FTSE Social Index I shares expense ratio updated to reflect fee reduction effective 2/2/2026. Otherwise, data is as of 12/31/2025. For the For mutual funds with multiple share classes, only the fund with the lower expense ratio is displayed. Sources: Morningstar, Sustainable Research and Analysis LLC.
Observations:
• Last week on February 2, 2026, Vanguard’s implemented what had previously been announced as “significant and wide-ranging cost reductions across its investment lineup.” According to Vanguard, expense ratios for 84 mutual funds and exchange-traded share classes across 53 funds had been reduced, amounting to nearly $250 million in fee reductions in 2026. The action includes expense ratio reductions applicable to the focused sustainable Vanguard FTSE Social Index Fund-Admiral Shares (VFTAX), from 0.13% to 0.11% as well as the Vanguard FTSE Social Index Fund-Institutional Shares (VFTNX), from 0.07% to 0.03%.
• These reductions now shift the Admiral share class of the largest focused sustainable index fund, with $25.7 billion in net assets, to the lowest cost sustainable index fund offering and further serves to reinforce the attractiveness of the fund. The Vanguard FTSE Social Index Fund Institutional share class expense ratio will now be equivalent to Vanguard’s second largest index fund, the conventional $83.3 billion Vanguard S&P 500 ETF.
• It is well documented that lower costs are directly correlated to the long-term performance of funds. Based on the fund’s low expense ratio, as well as other factors as described below, the fund has also been assigned a Fund Quality Rating of “A” by Sustainable Research and Analysis. For investors whose sustainability preferences align with the fund’s approach to sustainable investing, the Vanguard FTSE Social Index Fund is a strong candidate to function as a core holding in a diversified sustainable and/or conventional portfolio.*
• The Vanguard FTSE Social Index Fund tracks the FTSE US Choice Index, consisting of market capitalization-weighted large- and mid-cap US stocks. The fund employs a sustainable screening and exclusions approach to sustainable investing pursuant to which the fund screens for ESG criteria and excludes companies involved in/deriving threshold revenue from adult entertainment, alcohol, tobacco, cannabis, gambling, certain weapons, civilian firearms, nuclear power, and coal/oil/gas; also excludes companies failing certain labor, human rights, environmental, anti-corruption, and diversity criteria.
• Vanguard’s FTSE Social Choice Index Fund represents one of 81 sustainable passively managed funds/share classes and index tracking ETFs with combined assets of $109.2 billion that accounts for 23.5% of the segment’s assets, as of YE 2025. The fund is classified as a Large Blend fund by Morningstar. That said, investors should be aware of the fund’s concentration in the Technology sector, which now stands at around 48% due to the significant run-up in the prices of Magnificent 7 stocks of companies that include Alphabet (GOOGL), Amazon, Apple, Meta Platforms (Facebook), Microsoft, Nvidia and Tesla, held by the fund, and exposes investors, at this time, to greater risks than might be realized. Effective diversification and the fund’s positioning as an intermediate-to-long-term holding may be advisable.
*Vanguard’s Large Blend ESG US Stock ETF (ESGV), which tracks the FTSE US All Cap Choice Index that covers a broader universe of stocks, has also been assigned a Fund Quality Rating of “A.” While not yet open to FTSE Social Index Fund shareholders, ESGV participates in Vanguard’s Investor Choice program that offers individual investors, financial advisors and plan sponsors a choice of a proxy voting policy option that aligns with their preferences, including the Glass Lewis ESG option that bases its recommendations “ that enhanced disclosure of company policies and practices related to certain ESG issues could mitigate company risks and create operational opportunities.” Four other voting options are also available.
SRA Fund Quality Ratings-An Explanation
Fund quality ratings are evaluated and assigned to funds within their designated investment category/segment. Fund quality ratings are expressed along a five-point scale that runs from A (highest quality) to E (lowest quality).
Ratings combine qualitative and quantitative elements and are derived based on an evaluation of the five factors. The first three, which are evaluated qualitatively, are: (a) Management company. The fund should be offered and managed by an established firm with a positive reputation, to ensure effective fund operations and instill trust and confidence in the organization. (b) Years in operation. The fund should be in operation for at least three years and managed pursuant to the same investment strategy—to provide a sufficiently long but not excessively long view against which to evaluate the fund’s operations, strategy, and performance. (c) Fund size. The fund’s total net assets should exceed $30 million—so that it may be managed more efficiently and to provide some protection against the fund’s early liquidation or closure. Some exceptions may apply in the case of funds offered by larger, established firms. The next two factors, which are evaluated quantitatively via a scoring methodology, are: (d) Total returns. The fund’s performance results, achieved by adhering to a relatively consistent investment approach, are evaluated relative to an appropriate securities market index over a one year, three year and five-year intervals, and (e) Expense ratio. The fund’s expense ratio is evaluated relative to other funds in the same investment category/segment.
One evaluated and scored, fund quality ratings are distributed as follows: Top 15%=A, next 20%=B, next 30%=C, next 20%=D and final 15%=E.
NR indicates that a rating has not been assigned to the fund as it employs leverage, it falls outside the designated investment category, or it fails to meet one of the minimum requirements.
Funds with quality ratings in category levels “A” and “B” should be considered leading and secondary candidates for positions within diversified portfolios consisting entirely or partially of sustainable funds or on a stand-alone basis. Leading and secondary candidates should be evaluated relative to an investor’s sustainability preferences. In the case of thematic funds, such as renewable energy funds, investors should keep in mind that some funds are narrowly focused, for example, funds investing in solar or wind energy, while others are broader based, for example, renewable energy or energy transition.
Fund selections should be consistent with an investor’s financial goal and objectives and sustainability preferences.
Updated 1-17-2026
