Index fund juggernaut Vanguard filed this morning for a suite of actively managed ETFs.
Not only are these the first actively managed ETFs the firm will offer, they will also be Vanguard’s first funds to focus specifically on factors among its entire offering. The lineup described in the prospectus includes five single-factor funds and one multifactor fund.
What’s more, the active funds will be offered at prices typically seen only among passively managed funds.
The ETFs outlined in the filing are as follows:
- Vanguard U.S. Minimum Volatility ETF
- Vanguard U.S. Value Factor ETF
- Vanguard U.S. Momentum Factor ETF
- Vanguard U.S. Liquidity Factor ETF
- Vanguard U.S. Quality Factor ETF
- Vanguard U.S. Multifactor ETF
The single-factor funds will come with an expense ratio of 0.13%, while the multifactor fund will charge 0.18%. That’s cheaper than a large swath of the plain-vanilla index ETF universe. Vanguard will also introduce a mutual fund counterpart to the multifactor ETF at the same low price as part of its Admiral share class lineup.
The proposed ETFs are all managed according to a rules-based quantitative process, with the multifactor fund focused in particular on diversification, liquidity and lower volatility, as well as stocks with strong recent performance, strong fundamentals and low prices relative to fundamentals, the prospectus said.
In particular, the liquidity-factor ETF appears to be the first fund to focus on low-liquidity stocks, which is even more interesting given the description of all funds in the prospectus, including that one notes they are designed to foster liquidity. The liqudity-factor fund may draw on the work of Zhiwu Chen, Roger Ibbotson and Wendy Hu, whose paper "Liquidity as an Investment Style" was published in September 2010.
Stocks are selected for the funds from all size segments of the U.S. market—large, mid and small.
Vanguard has previously focused on market-cap-weighted passive exposure to core asset classes, and aside from its dividend and style funds, has largely stayed out of the smart-beta wave sweeping the ETF space, including factor funds. With this filing, it sets off in a new direction by focusing on individual factors and by taking an active approach to what are typically index-based strategies.
The filing did not include tickers or a listing exchange.
Contact Heather Bell at [email protected]