Hundreds of new exchange traded funds debuted last year, including a wide range of smart beta strategies. Plenty of multi-factor funds, those ETFs emphasizing multiple investment factors, were include in 2018’s crop of rookie ETFs.
The Vanguard U.S. Multifactor ETF (Cboe: VFMF) was among those funds. Part of a broader suite of Vanguard’s first actively managed ETFs, VFMF seeks to provide long-term capital appreciation by investing in stocks with relatively strong recent performance, strong fundamentals, and low prices relative to fundamentals.
VFMF uses a rules-based methodology to evaluate U.S. equities and weed out volatile names.
“After applying an initial screen to remove the most volatile stocks in the universe, stocks are then selected according to their equally weighted ranking across three targeted factors; momentum- stocks that exhibit strong recent performance, quality- stocks that exhibit strong fundamentals, and value- stocks with low prices relative to fundamental,” according to Vanguard.
Favorable Reviews
VFMF celebrates its first anniversary in February and the Vanguard fund is already attracting some favorable reviews from analysts.
“This fund is distinct from other multifactor ETFs in a few ways. First, it is actively managed, but just barely so,” said Morningstar in a recent note. “The fund’s managers employ a paint-by-numbers brand of systematic active management that allows them to balance achieving their desired factor exposures with minimizing the costs involved in trading the portfolio in such a way that wouldn’t be possible if they set out to track an index directly.”
The Vanguard multi-factor ETF includes large-, mid- and small-cap stocks and is home to 501 stocks with a median market value of $9.3 billion, indicating a mid-cap tilt. While the fund is sector agnostic, the consumer discretionary and financial services sectors combine for almost 46% of VFMF’s roster.
VFMF “goes further down the market-cap spectrum than most of its multifactor peers, where factor returns have tended to be richer,” according to Morningstar.
As is the case with many Vanguard ETFs, VFMF is favorably priced. The fund’s annual fee of 0.18% is favorable relative to the broader universe of domestic large-cap smart beta strategies.
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