I’ve been talking a lot in the past year about the evolution of active management and how high-cost active management is fading away. But that doesn’t mean active is dying—it’s just evolving toward low cost.
Which brings me to our new low-cost factor-based ETFs, the latest additions to our active lineup. Our suite of actively managed factor-based ETFs fits right into where we believe active management is heading.
While you’ve been able to take advantage of our low-cost index funds that are focused on factors for some time, we’ve now expanded our active targeting of factors. We believe active management can deliver more consistent exposure to the factors your clients may want.
Our aim is to help you expand your tool kit with low-cost products that deliver highly targeted factor exposure to help you help your clients meet their specific goals.
Get precise tools to target certain factors
After careful consideration, we selected five factors to target out of more than 300 identified in academic research. Those five factors are value, quality, momentum, liquidity, and volatility.
Our investment research team chose those factors because they meet three essential criteria:
- Enduring, logical investment rationale.
- Empirical evidence.
You can now help meet client needs with a suite of ETFs targeting well-known and well-researched factors. That said, factor-based investing can potentially be a bumpy road to outperformance and factors can go through long periods of underperforming the market. So you’ll have to teach your clients patience.
Harness an actively managed approach to factors
The new funds are run by the Vanguard Quantitative Equity Group (QEG), which managed about $39 billion across a wide range of equity investments as of December 31, 2017. QEG has been designing and implementing rules-based active strategies for more than 25 years, and it has managed an active factor-based fund since 2013. That invaluable experience, together with Vanguard’s deep bench of credentialed professionals, helps us deliver factor-based strategies that can help you fine-tune client portfolios for clients’ changing needs.
Committed to supporting you
To make sure you have access to the most up-to-date information about factors, please check out our Factors Center—an online resource for understanding and applying factor products. Plus, your Vanguard sales executive stands ready to have broader conversations about how to reflect clients’ goals through this next stage of active management, i.e., a low-cost and targeted approach to factors.
Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility.
Factor funds are subject to investment style risk, which is the chance that returns from the types of stocks in which the fund invests will trail returns from the stock markets. Factor funds are subject to manager risk, which is the chance that poor security selection will cause the fund to underperform relevant benchmarks or other funds with a similar investment objective.