Vanguard Launches First Active Smart Beta ETFs

December 10, 2015

Vanguard has launched its first actively managed smart beta exchange traded funds (ETFs) for investors, undercutting providers on price and taking a step away from its usual approach of the so-called plain vanilla portfolio building blocks.

The four funds have annual fees of 0.22 percent and are skewed towards four factors: global value, global momentum, global liquidity and global minimum volatility. All four will be managed by Vanguard's quantitative equity group.

Axel Lomholt, head of product for Vanguard's international business, explained that the funds are actively managed by using quantitative models to select stocks and build a portfolio that targets its chosen factor, as opposed to other ETFs that track an index.

John James, managing director for Vanguard in Europe, said, "Today's launch reinforces Vanguard's commitment to offering UK investors high-value, low-cost active and index funds."

Adam Laird, investment manager at Hargreaves Lansdown, noted that Vanguard has undercut iShares' smart beta range on price by around a quarter.

"This could be the start of a new wave," he said. "Smart beta is a big growth area with many new entrants - BMO in the UK and Goldman Sachs in the U.S. And with the cheapest ETFs now charging 0.05 percent, smart beta charges can fall even lower."

A recent research paper from AllianceBernstein found smart beta fees in the U.S. were reaching as low as 9 basis points on average, with fees falling faster than anywhere else in fund management.

Vanguard came into the market in 2009 and has over $19 billion under management. In the UK it offers 17 ETFs with an average annual cost of 0.17 percent.

 

 

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