How Does This ESG Fund Compare to the Vanguard Total World Stock ETF?

The Vanguard Total World Stock ETF (NYSEMKT:VT) provides broad global exposure at a lower cost, while the State Street SPDR MSCI ACWI Climate Paris Aligned ETF (NASDAQ:NZAC) applies specific environmental screens.

Global equity ETFs allow investors to capture the growth of companies across developed and emerging markets in a single trade. While both funds look to the global stage, they differ in their selection criteria and the sheer volume of companies they include in their respective portfolios.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard fund is the more affordable option with a 0.06% expense ratio, half the cost of the SPDR fund. For income-seeking investors, the SPDR fund offers a higher trailing yield of 2% compared to 1.6% for the Vanguard fund.

Performance & risk comparison

What's inside

The Vanguard Total World Stock ETF tracks a massive basket of 10,088 holdings, providing deep exposure to the global market. Sector weights include technology at 29%, financial services at 17%, and industrials at 11%. Its largest positions include Nvidia Corp at 4.3%, Apple at 3.84%, and Microsoft at 3.14%. The fund was launched in 2008. Vanguard Total World Stock ETF has paid $2.48 per share over the trailing 12 months, which on its recent ~$158.53 share price works out to a 1.6% yield.

The State Street SPDR MSCI ACWI Climate Paris Aligned ETF employs an ESG screen to target climate-aligned outcomes with 609 holdings. Sector allocation tilts toward technology at 35%, financial services at 17.5%, and Cash & Others at 10%. Top holdings include Nvidia Corp at 6.09%, Apple Inc at 5.35%, and Microsoft Corp at 3.93%. The fund was launched in 2014. State Street SPDR MSCI ACWI Climate Paris Aligned ETF has paid $0.94 per share over the trailing 12 months, which on its recent ~$46.25 share price works out to a 2% yield.

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Which looks like the better buy

It's tough to go up against the Vanguard Total World Stock ETF. This massive fund holds over 10,000 stocks and more than $100 billion in assets, making it highly liquid and relatively stable. Its expense ratio is half that of the State Street ETF, and it edges ahead in terms of both one- and five-year returns. Indeed, many market watchers would consider VT a foundational holding for a diversified stock portfolio, as it gives you broad access to companies and markets around the world.

On the other hand, a bet on the State Street Climate Paris Aligned ETF is an investment in your conviction. Per the State Street website, the fund "Seeks to track an index designed to reduce exposure to the physical and transition risks of climate change." ESG investing, like with this ETF, is a way to align your portfolio with your vision of the future -- and it may turn out to be good for business as well. Indeed, this fund beats VT on dividend yield with close to the same amount of volatility.

Note that the top three holdings of both funds are roughly the same, and make up more than 10% of each funds' total holdings. Your choice will likely come down to the role you want these funds to play in your overall portfolio. In fact, holding both funds could be a way to build a portfolio that is diverse, stable, and reflects your convictions.

Sarah Sidlow has positions in Apple, Microsoft, Nvidia, and Vanguard International Equity Index Funds - Vanguard Total World Stock ETF. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.