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Vanguard Enters Active ETF Space

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Cinthia Murphy, Staff Writer for ETF.com

Vanguard, the second largest U.S. ETF provider, surprised the ETF market this week with the launch of six actively managed factor ETFs.

While the firm has about $1.2 trillion invested in its actively managed mutual funds, Vanguard is best known as the pioneer in index investing and index funds. The lineup of new funds, which are listed on Cboe Global Markets, the parent company of ETF.com, marks Vanguard’s first foray into the active ETF space.

Unsurprisingly, however, these new active ETFs came to market with Vanguard-like low expense ratios, all under 0.20%, or $20 per $10,000 invested. They include:

  • Vanguard U.S. Liquidity Factor ETF (VFLQ), 0.13% expense ratio.
  • Vanguard U.S. Momentum Factor ETF (VFMO), 0.13% ER.
  • Vanguard U.S. Minimum Volatility ETF (VFMV), 0.13% ER.
  • Vanguard U.S. Quality Factor ETF (VFQY), 0.13% ER.
  • Vanguard U.S. Value Factor ETF (VFVA), 0.13% ER.
  • Vanguard U.S. Multifactor ETF (VFMF), 0.18% ER.

When it came to factor-focused funds, Vanguard had no desire to package these strategies using a passive index smart beta approach.

“For cap-weighted portfolio management, indexing makes perfect sense. With factor funds, you’re deviating from market-cap weighting, and to us that’s an active decision,” Matthew Jiannino, head of quantitative equity product management at Vanguard, told ETF.com in an interview.

“This allows us to maintain targeted exposure to the factor over time, so that as the factor may decay in the portfolio, the portfolio manager is going to have the discretion to turn over the portfolio as needed to maintain exposure to that factor long term,” he added.

Comparing Blockchain ETFs

Another segment of the ETF universe gathering attention these days is the nascent world of blockchain ETFs.

In 2018 alone, four different blockchain ETFs have come to market in such a short time that it’s almost difficult to assert first-to-market advantage. The funds have already attracted some $300 million in fresh net assets in less than a month.

This week, ETF.com went under the hood with these ETFs, showing how each accesses the blockchain investment theme in a different way, even if a pure-play portfolio of blockchain companies is still practically impossible, given the newness of this industry.

The approaches vary significantly, from an actively managed take on the space, to one that relies on artificial intelligence to assess the collective wisdom of the media about blockchain companies, to everything in between.

The funds include:

  • Amplify Transformational Data Sharing ETF (BLOK)
  • Reality Shares Nasdaq NexGen Economy ETF (BLCN)
  • Innovation Shares NextGen Protocol ETF (KOIN)
  • First Trust Indxx Innovative Transaction & Process ETF (LEGR)

Commodities On Cusp Of Supercycle

Finally, a note about commodities. Maxwell Gold, director of investment strategy and research at ETF Securities, called investors to take note of what he says is the making of another commodities “supercycle.

According to him, since 2016—a time he calls a “turning point” for commodities markets—we’ve seen aggregate supply shrink while output has gone down, thanks in part to reductions in capital investment in commodities production.

“There's more rebalancing needed in terms of drawing down on existing supply,” Gold said. “But we're beginning to move back into balance in certain commodities, and the fundamentals are becoming much more attractive.”

“Over the next couple of years, commodities will be an area where we'll begin to see a lot of improvement fundamentally, including a better macroeconomic backdrop with rising growth and rising inflation,” he said.

For the past several years, investors have shunned the commodities segment due to poor fundamentals and performance, but Gold said that’s all beginning to change.

More on ETF.com:

Korea Firm Buys ETF Issuer Global X

Why Factors Are Cyclical

How Institutions Use ETFs

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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