Vanguard rolls out active-factor ETFs

New offerings include six exchange-traded funds and one mutual fund

Feb 15, 2018 @ 1:58 pm

By John Waggoner

The Vanguard Group has launched six new factor-based, actively managed exchange-traded funds and one factor-based mutual fund.

The six ETFs — Vanguard U.S. Minimum Volatility ETF (VFMV), Vanguard U.S. Value Factor ETF (VFVA), Vanguard U.S. Momentum Factor ETF (VFMO), Vanguard U.S. Liquidity Factor ETF (VFLQ), Vanguard U.S. Quality Factor ETF (VFQY) and Vanguard U.S. Multifactor ETF (VFMF) — will be run by Antonio Picca and Liqian Ren, who both work in Vanguard's quantitative equity group. The pair will also run the one mutual fund Vanguard unveiled Thursday, the Vanguard U.S. Multifactor Fund (VFMFX).

The funds are, in part, an outgrowth of the work done at Vanguard's quantitative equity group, which was set up in 1991.

"It's the same analytics used in the funds managed by the group, and the same data used to generate signals, but more targeted," said John Ameriks, head of the Vanguard quantitative equity group.

Vanguard rolled out its first factor fund, Vanguard Global Minimum Volatility (VMVFX), in 2013.

The ETFs and fund are essentially rules-based, although the managers will have a limited amount of discretionary power, Mr. Picca said. "We will manage them every day according to a clearly defined set of rules," he said. "But we look at them daily, and rebalance when needed."

What makes the funds active is that managers can modify the rules when experience shows that's necessary.

"Management has the flexibility to think about the rules," Mr. Ameriks said. And because the fund will be monitored daily, rather than annually or quarterly, its holdings could change more rapidly than those of most factor funds.

The ETFs that concentrate on one factor will have an expense ratio of 0.13%, while the multifactor ETF and fund will have an expense ratio of 0.18%.

Because investors and advisers may need help in figuring out how to use factor funds, Vanguard has launched a website featuring product information, research, and education on factor funds and factor investing.

For investors, the advantageof the new suite is access to smart beta funds at a low cost. For Vanguard, the new offerings have another advantage: "They will always have something at the top," said Dan Wiener, editor of The Independent Adviser for Vanguard Investors, a newsletter.

The six additional ETFs bring Vanguard's total ETF offerings to 77, with about $855 billion in assets.


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