Examining Vanguard's U.S. equity factor ETFs

These new funds aren't ground-breaking, but they offer some incremental advantages over their peers.

Alex Bryan 27 February, 2018 | 6:00PM

In mid-February, Vanguard launched a suite of low-cost, actively managed U.S. Equity factor ETFs in the United States, making a late entry in a crowded field. The firm's Quantitative Equity Group, which manages the new funds, has managed similar factor ETFs listed in Europe since December 2015 and in Canada since June 2016.

Most competing factor ETFs are index-based, a group of funds we refer to as "strategic beta," and are often marketed as "smart beta." Vanguard has notably shied away from such ETFs, arguing that active implementation of factor strategies can be more cost-efficient and that investors should think of these as active strategies.

Vanguard's factor ETFs are not active in the traditional sense. They are systematic, rules-based strategies, so there are no qualitative judgments about the investment merit of each stock. But the managers have discretion to rebalance the portfolios (or not) when they see fit to balance the costs of trading against the benefits.

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About Author

Alex Bryan

Alex Bryan  Alex Bryan, CFA, is director of passive strategies for North America at Morningstar. Before assuming his current role in 2016, he spent four years as an analyst covering equity strategies. He holds an MBA with high honors from the University of Chicago Booth School of Business.