BEST NEW ACTIVE ETF
WINNER: Vanguard U.S. Multifactor ETF (VFMF)
Despite being known mainly for its pioneering index funds, Vanguard has a long history in active management on its mutual fund side. But until recently, it hadn’t introduced any actively managed ETFs. So it was big news when the issuer rolled out a suite of actively managed factor funds in February 2018.
The largest of these is the Vanguard U.S. Multifactor ETF (VFMF), which in a way is a combination of the other factor funds the issuer has launched, investing as it does in U.S. equities exhibiting value, momentum, quality and low-volatility characteristics. The fund seeks long-term capital appreciation.
Like the other ETFs in the Vanguard factor family, VFMF selects its holdings from across the size spectrum of U.S. stocks, and relies on a quantitative model to evaluate potential holdings. The fund uses a rules-based screen to ensure diversification and limit exposure to certain less liquid stocks.
VFMF doesn’t simply hold the single-factor ETFs in the Vanguard family as an ETF-of-ETFs; it’s separately managed and has its own discrete portfolio of equities. The fund’s potential holdings are scored on their exposure to VFMF’s targeted factors and are selected for inclusion based on the underlying model.
The pricing for VFMF is extremely low, at 0.18%. The only actively managed U.S.-focused ETFs that are cheaper are VFMF’s close relatives, the Vanguard single-factor funds, which all charge 0.13%, and the PGIM QMA Strategic Alpha Large-Cap Core ETF (PQLC), which charges 0.17%.
BEST NEW ESG ETF
WINNER: Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST)
In an increasingly “greenwashed” field of environmental, social and governance (ESG) funds that are socially responsible in name only, the Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST) offers a truly unique take on what it means to invest with a conscience.
As a partnership between Goldman Sachs and Paul Tudor Jones II’s nonprofit JUST Capital, JUST is designed to be a bellwether of investors’ priorities.
The fund’s benchmark starts with a series of public opinion surveys, in which U.S.-based respondents identify the business practices that most matter to them—everything from how companies treat their workers to the eco-friendliness of their supply chain.
From there, large-cap companies are ranked and weighted by the behaviors that respondents said were most important to them, using roughly 120,000 discrete data points from a wide range of sources.
Each year, the index reconstitutes the weightings, based on that year’s survey results—meaning that JUST evolves as investors’ concept of social justice changes, so that its portfolio always reflects whatever matters most to investors in the moment it matters most. One year, the portfolio might weight more toward, say, firms known for prioritizing job creation within disadvantaged communities; another, it might more heavily favor firms with strong environmental records.
Its methodology makes JUST an ESG ETF that’s not just for the people, but by the people.