Semiannual
Report | February
28, 2022
Vanguard
ESG U.S. Stock ETF
About Your
Fund’s Expenses
As
a shareholder of the fund, you incur ongoing costs, which include costs for
portfolio management, administrative services, and shareholder reports (like
this one), among others. Operating expenses, which are deducted from a fund’s
gross income, directly reduce the investment return of the fund.
A
fund‘s expenses are expressed as a percentage of its average net assets. This
figure is known as the expense ratio. The following examples are intended to
help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based
on an investment of $1,000 made at the beginning of the period shown and held
for the entire period.
The
accompanying table illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To
do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note
that the expenses shown in the table are meant to highlight and help you compare
ongoing costs only and do not reflect
transaction costs incurred by the fund for buying and selling securities.
Further, the expenses do not include any purchase, redemption, or account
service fees described in the fund prospectus. If such fees were applied to your
account, your costs would be higher. Your fund does not carry a “sales
load.”
The
calculations assume no shares were bought or sold during the period. Your actual
costs may have been higher or lower, depending on the amount of your investment
and the timing of any purchases or redemptions.
You
can find more information about the fund’s expenses, including annual expense
ratios, in the Financial Statements section of this report. For additional
information on operating expenses and other shareholder costs, please refer to
your fund’s current prospectus.
1
| Six Months Ended February 28, 2022 | |||
| ESG U.S. Stock ETF | Beginning
Account Value 8/31/2021 |
Ending
Account Value 2/28/2022 |
Expenses
Paid During Period |
| Based on Actual Fund Return | $1,000.00 | $ 938.90 | $0.43 |
| Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,024.35 | 0.45 |
The
calculations are based on expenses incurred in the most recent six-month period.
The fund's annualized six-month expense ratio for that period is 0.09%. The
dollar amounts shown as ”Expenses Paid” are equal to the annualized expense
ratio multiplied by the average account value over the period, multiplied by the
number of days in the most recent six-month period, then divided by the number
of days in the most recent 12-month period (181/365).
2
ESG
U.S. Stock ETF
Fund
Allocation
As
of February 28, 2022
| Basic Materials | 2.1% |
| Consumer Discretionary | 16.5 |
| Consumer Staples | 4.5 |
| Energy | 0.2 |
| Financials | 11.3 |
| Health Care | 13.8 |
| Industrials | 10.7 |
| Real Estate | 3.9 |
| Technology | 32.5 |
| Telecommunications | 3.3 |
| Utilities | 1.2 |
The
table reflects the fund’s investments, except for short-term investments and
derivatives. Sector categories are based on the Industry Classification
Benchmark (“ICB”), except for the “Other” category (if applicable), which
includes securities that have not been provided an ICB classification as of the
effective reporting period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
The
Industry Classification Benchmark (“ICB”) is owned by FTSE. FTSE does not accept
any liability to any person for any loss or damage arising out of any error or
omission in the ICB.
3
ESG
U.S. Stock ETF
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
4
ESG
U.S. Stock ETF
Derivative
Financial Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number
of Long (Short) Contracts |
Notional
Amount |
Value
and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| E-mini S&P 500 Index | March 2022 | 69 | 15,070 | (777) |
See
accompanying Notes, which are an integral part of the Financial
Statements.
21
ESG
U.S. Stock ETF
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $5,352,450) | 6,104,471 |
| Affiliated Issuers (Cost $13,002) | 13,002 |
| Total Investments in Securities | 6,117,473 |
| Investment in Vanguard | 208 |
| Cash | 98 |
| Cash Collateral Pledged—Futures Contracts | 693 |
| Receivables for Accrued Income | 4,779 |
| Receivables for Capital Shares Issued | 30 |
| Total Assets | 6,123,281 |
| Liabilities | |
| Payables for Investment Securities Purchased | 151 |
| Collateral for Securities on Loan | 3,162 |
| Payables to Vanguard | 195 |
| Variation Margin Payable—Futures Contracts | 38 |
| Total Liabilities | 3,546 |
| Net Assets | 6,119,735 |
|
At February 28, 2022, net assets consisted of: |
|
| Paid-in Capital | 5,403,677 |
| Total Distributable Earnings (Loss) | 716,058 |
| Net Assets | 6,119,735 |
| Net Assets | |
| Applicable
to 77,675,000 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
6,119,735 |
| Net Asset Value Per Share | $78.79 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
22
ESG
U.S. Stock ETF
Statement
of Operations
| Six
Months Ended February 28, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends 1 | 33,068 |
| Interest 2 | 4 |
| Securities Lending—Net | 67 |
| Total Income | 33,139 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 297 |
| Management and Administrative | 2,131 |
| Marketing and Distribution | 112 |
| Custodian Fees | 22 |
| Shareholders’ Reports | 51 |
| Trustees’ Fees and Expenses | 2 |
| Other Expenses | 8 |
| Total Expenses | 2,623 |
| Net Investment Income | 30,516 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold2,3 | (5,776) |
| Futures Contracts | 871 |
| Realized Net Gain (Loss) | (4,905) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities2 | (427,644) |
| Futures Contracts | (1,312) |
| Change in Unrealized Appreciation (Depreciation) | (428,956) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (403,345) |
| 1 | Dividends are net of foreign withholding taxes of $8,000. |
| 2 | Interest income, realized net gain (loss), capital gain distributions received, and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $4,000, ($2,000), less than $1,000, and less than $1,000, respectively. Purchases and sales are for temporary cash investment purposes. |
| 3 | Includes $34,324,000 of net gain (loss) resulting from in-kind redemptions. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
23
ESG
U.S. Stock ETF
Statement
of Changes in Net Assets
| Six
Months Ended February 28, 2022 |
Year
Ended August 31, 2021 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 30,516 | 41,668 | |
| Realized Net Gain (Loss) | (4,905) | 214,169 | |
| Change in Unrealized Appreciation (Depreciation) | (428,956) | 783,171 | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (403,345) | 1,039,008 | |
| Distributions | |||
| Total Distributions | (33,681) | (34,446) | |
| Capital Share Transactions | |||
| Issued | 1,402,645 | 2,829,322 | |
| Issued in Lieu of Cash Distributions | — | — | |
| Redeemed | (105,284) | (548,827) | |
| Net Increase (Decrease) from Capital Share Transactions | 1,297,361 | 2,280,495 | |
| Total Increase (Decrease) | 860,335 | 3,285,057 | |
| Net Assets | |||
| Beginning of Period | 5,259,400 | 1,974,343 | |
| End of Period | 6,119,735 | 5,259,400 | |
See
accompanying Notes, which are an integral part of the Financial
Statements.
24
ESG
U.S. Stock ETF
Financial
Highlights
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | September 18, 20181 to August 31, 2019 | |
| 2021 | 2020 | |||
| Net Asset Value, Beginning of Period | $84.42 | $64.47 | $51.25 | $50.00 |
| Investment Operations | ||||
| Net Investment Income2 | .435 | .873 | .846 | .792 |
| Net Realized and Unrealized Gain (Loss) on Investments | (5.566) | 19.844 | 13.146 | .868 |
| Total from Investment Operations | (5.131) | 20.717 | 13.992 | 1.660 |
| Distributions | ||||
| Dividends from Net Investment Income | (.499) | (.767) | (.772) | (.410) |
| Distributions from Realized Capital Gains | — | — | — | — |
| Total Distributions | (.499) | (.767) | (.772) | (.410) |
| Net Asset Value, End of Period | $78.79 | $84.42 | $64.47 | $51.25 |
| Total Return | -6.11% | 32.41% | 27.60% | 3.40% |
| Ratios/Supplemental Data | ||||
| Net Assets, End of Period (Millions) | $6,120 | $5,259 | $1,974 | $595 |
| Ratio of Total Expenses to Average Net Assets | 0.09% | 0.09% | 0.12% | 0.12% 3 |
| Ratio of Net Investment Income to Average Net Assets | 1.05% | 1.18% | 1.54% | 1.67% 3 |
| Portfolio Turnover Rate4 | 3% | 6% | 6% | 6% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||
| 1 | Inception. |
| 2 | Calculated based on average shares outstanding. |
| 3 | Annualized. |
| 4 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
25
ESG
U.S. Stock ETF
Notes
to Financial Statements
Vanguard
ESG U.S. Stock ETF is registered under the Investment Company Act of 1940 as an
open-end investment company, or mutual fund. ETF Shares are listed for trading
on Cboe BZX Exchange; they can be purchased and sold through a broker. Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
A. The following significant accounting policies
conform to generally accepted accounting principles for U.S. investment
companies. The fund consistently follows such policies in preparing its
financial statements.
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund's pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value.
2. Futures
Contracts: The fund uses index futures contracts to a limited extent, with the
objectives of maintaining full exposure to the stock market, maintaining
liquidity, and minimizing transaction costs. The fund may purchase futures
contracts to immediately invest incoming cash in the market, or sell futures in
response to cash outflows, thereby simulating a fully invested position in the
underlying index while maintaining a cash balance for liquidity. The primary
risks associated with the use of futures contracts are imperfect correlation
between changes in market values of stocks held by the fund and the prices of
futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the
counterparty instead of the clearing broker. To further mitigate counterparty
risk, the fund trades futures contracts on an exchange, monitors the financial
strength of its clearing brokers and clearinghouse, and has entered into
clearing agreements with its clearing brokers. The clearinghouse imposes initial
margin requirements to secure the fund’s performance and requires daily
settlement of variation margin representing changes in the market value of each
contract. Any securities pledged as initial margin for open contracts are noted
in the Schedule of Investments.
Futures
contracts are valued at their quoted daily settlement prices. The notional
amounts of the contracts are not recorded in the Statement of Assets and
Liabilities. Fluctuations in the value of the contracts are recorded in the
Statement of Assets and Liabilities as an asset (liability) and in the Statement
of Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized gains (losses) on futures
contracts.
During
the six months ended February 28, 2022, the fund’s average investments in long
and short futures contracts represented less than 1% and 0% of net assets,
respectively, based on the average of the notional amounts at each quarter-end
during the period.
3. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is
26
ESG
U.S. Stock ETF
generally
three years after the filing of the tax return. Management has analyzed the
fund’s tax positions taken for all open federal and state income tax years, and
has concluded that no provision for income tax is required in the fund’s
financial statements.
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
5. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
6. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at a
rate based upon the higher of the one-month London Interbank Offered Rate (or an
acceptable alternate rate, if necessary), federal funds effective rate, or
overnight bank funding rate plus an agreed-upon spread, except that borrowings
under the uncommitted credit facility may bear interest based upon an
alternative rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and
27
ESG
U.S. Stock ETF
borrowings
normally extend overnight, but can have a maximum duration of seven days. Loans
may be called on one business day’s notice. The interest rate to be charged is
governed by the conditions of the Order and internal procedures adopted by the
board of trustees. The board of trustees is responsible for overseeing the
Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
7. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold.
B. In accordance with the terms of a Funds’ Service
Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the
fund investment advisory, corporate management, administrative, marketing, and
distribution services at Vanguard’s cost of operations (as defined by the FSA).
These costs of operations are allocated to the fund based on methods and
guidelines approved by the board of trustees and are generally settled twice a
month.
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $208,000, representing less than 0.01% of the fund’s
net assets and 0.08% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
C. Various inputs may be used to determine the value of
the fund’s investments and derivatives. These inputs are summarized in three
broad levels for financial statement purposes. The inputs or methodologies used
to value securities are not necessarily an indication of the risk associated
with investing in those securities.
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments and derivatives valued with significant unobservable inputs are
noted on the Schedule of Investments.
28
ESG
U.S. Stock ETF
The
following table summarizes the market value of the fund's investments and
derivatives as of February 28, 2022, based on the inputs used to value
them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total
($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 6,103,734 | 736 | 1 | 6,104,471 |
| Temporary Cash Investments | 13,002 | — | — | 13,002 |
| Total | 6,116,736 | 736 | 1 | 6,117,473 |
| Derivative Financial Instruments | ||||
| Liabilities | ||||
| Futures Contracts1 | 777 | — | — | 777 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
D. As of February 28, 2022, gross unrealized
appreciation and depreciation for investments and derivatives based on cost for
U.S. federal income tax purposes were as follows:
| Amount
($000) | |
| Tax Cost | 5,368,104 |
| Gross Unrealized Appreciation | 1,066,343 |
| Gross Unrealized Depreciation | (317,751) |
| Net Unrealized Appreciation (Depreciation) | 748,592 |
The
fund’s tax-basis capital gains and losses are determined only at the end of each
fiscal year. For tax purposes, at August 31, 2021, the fund had available
capital losses totaling $36,022,000 that may be carried forward indefinitely to
offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balance above.
E. During the six months ended February 28, 2022, the
fund purchased $1,559,220,000 of investment securities and sold $264,342,000 of
investment securities, other than temporary cash investments. Purchases and
sales include $1,357,484,000 and $102,499,000, respectively, in connection with
in-kind purchases and redemptions of the fund’s capital shares.
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended February 28, 2022, such purchases
were $49,749,000 and sales were $25,099,000, resulting in net realized loss of
$1,706,000; these amounts, other than temporary cash investments, are included
in the purchases and sales of investment securities noted above.
29
ESG
U.S. Stock ETF
F. Capital shares issued and redeemed
were:
| Six
Months Ended February 28, 2022 |
Year
Ended August 31, 2021 | ||
| Shares
(000) |
Shares
(000) | ||
| Issued | 16,625 | 39,175 | |
| Issued in Lieu of Cash Distributions | — | — | |
| Redeemed | (1,250) | (7,500) | |
| Net Increase (Decrease) in Shares Outstanding | 15,375 | 31,675 |
G. Market disruptions associated with current
geopolitical events have had a global impact, and uncertainty exists as to their
implications. Such disruptions can adversely affect assets and thus performance
of the fund; at this time, an aggregate effect on assets and performance cannot
be reasonably estimated. Management is continuing to monitor these developments
and evaluate impacts they may have on the fund.
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
30
