Another option would be to offer an ETF version of Vanguard Global Minimum Volatility Fund (VMVFX), an active strategy that launched at the end of 2013. In building the portfolio, Vanguard’s quant group evaluates a variety of factors that they think drive a stock’s volatility. According to the fund’s annual report, these fundamental drivers include risk factors such as growth, value, dividend yields, size, volatility, and liquidity. In addition, the portfolio construction process includes estimates of each stock’s correlation.
While CFRA thinks investors should not rely solely on a three-year track record, VMVFX’s one-year total return as of May 26 was stronger than passively managed iShares Edge MSCI Minimum Volatility Global (ACWV). VMVFX has a 0.25% net expense ratio that is higher than ACWV’s 0.20%. While both funds have approximately half of assets in the U.S., ACWV has more exposure to Japan, while VMVFX has a 6% weighting to Canada, a country that is not part of ACWV. Both funds, ranked independently by CFRA due to their different fund structures, are viewed favorably for the low-risk holdings inside.
CFRA quantitative ranks more than 1,000 equity ETFs and 12,000 equity mutual fund shares classes based on a combination of holdings-level and fund-specific attributes. We have favorable ranking attributes on products from range of providers. For example, iShares, PowerShares and SSGA are among the asset managers that offer strong U.S. focused low volatility ETFs despite distinct methodologies. VTEB, TFI,ITM,MUB
When Vanguard has launched ETF products in the recent past, they have had success in gathering assets. For example, Vanguard Tax-Exempt Bond Fund ETF (VTEB) came to market in August 2015 and already has $1.2 billion in assets. CFRA ranks the index-based investment-grade municipal bond product, which has a favorably low 0.09% expense ratio that is cheaper than alternatives. iShares National Muni Bond (MUB), SPDR Nuveen Bloomberg Barclays Municipal Bond (TFI) and VanEckVectors AMT-Free Municipal Index (ITM) all have more than $1 billion in assets, but only recently have faced competition from Vanguard.
CFRA thinks that investors should look beyond a likely low expense ratio for a new product, to understand what’s inside and whether that makes a prudent investment. However, potential launches by a patient industry leader such as Vanguard are likely to draw interest. How the industry responds could affect relative standings in the ETF jungle.
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.