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Vanguard launches US factor-based ETFs


Vanguard has launched six new factor-based ETFs – the firm’s first actively managed ETFs in the US – and one factor-based mutual fund. 

Vanguard’s five single factor funds seek to achieve specific risk or return objectives through targeted factor exposures – minimum volatility, value, momentum, liquidity, and quality – and will have an estimated expense ratio of 0.13 per cent. The sixth ETF and mutual fund follows a multi-factor approach and has an estimated expense ratio of 0.18 per cent.
“The newly launched factor funds further broaden our active equity lineup and represent a differentiated approach – disciplined, rules-based, targeted exposure to factors – along with Vanguard’s low costs,” said Vanguard CEO Tim Buckley. “The funds are aimed primarily at financial advisors and institutional investors, who we believe understand the risks of potential underperformance and can effectively incorporate factor funds into their portfolios.”
The newly launched US factor funds serve as an extension of Vanguard’s low-cost active fund lineup. With USD1.2 trillion in global active assets, Vanguard’s deep roots in active management date back to the founding of Vanguard Wellington Fund in 1929 – the nation’s oldest balanced mutual fund. A focus on low costs, rigorous fund oversight, and access to a diverse group of talented managers has contributed to a history of competitive performance. Vanguard’s actively managed funds outperformed their peer group averages over the past 5- and 10-year periods – 91 per cent and 93 per cent, respectively.
The new funds will be managed by Vanguard Quantitative Equity Group (QEG). Established by Vanguard founder John C. Bogle and then-Chief Investment Officer Gus Sauter, QEG is Vanguard’s third largest active equity manager, overseeing more than USD39 billion. QEG serves as manager to 44 mandates globally, including all Vanguard factor funds offered to investors abroad and the firm’s first active US factor mutual fund, Vanguard Global Minimum Volatility Fund. QEG oversees a variety of strategies, including traditional alpha, factors, liquid alternatives, and managed payout.
To complement the launch of the funds, Vanguard Financial Advisor Services (FAS) introduced an Education Center – a comprehensive website featuring product information, research, and education on factor funds and factor investing. The centre features Vanguard’s latest research on factor investing, including Equity factor-based investing: A practitioner’s guide, How to use factor-based investing in client portfolios, and Drawing systematic value from the equity liquidity premium.
“The launch of our factor products and education centre underscores our commitment to financial advisors,” says Tom Rampulla, Managing Director-FAS. “Advisors have gravitated to our low-cost ETFs and index funds, and now they will have a suite of low-cost active factor funds to help them build portfolios for their clients.”
FAS provides products, support, research, tools, and content to registered investment advisors, broker dealers, banks, and other intermediaries. FAS has grown to be Vanguard’s largest business with USD1.7 trillion in assets. More than half of Vanguard’s USD369 billion in cash flow in 2017 was attributed to Vanguard’s advisor clients.

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