Vanguard has launched a new range of ETFs that entail more discretion than usual on the part of the manager.
Calling them ‘active’ ETFs, the company has brought out four new products that offer different investment approaches based on stick selection, while still under the ETF banner.
The products, which select stocks that fit the parameters from around the world, are: Global Value Factor; Global Momentum Factor; Global Liquidity Factor and Global Minimum Volatility Factor.
Global Value selects stocks that are considered to be good value compared with the company’s fundamentals; Momentum selects stocks with a recent strong share price; Global Liquidity picks stocks that are less frequently traded, and Global Minimum Volatility picks stocks that are less risky.
The company said it had formulated the products based on various fund types that are popular with clients.
The ETFs will be managed by Vanguard’s Quantitative Equity Group, which has run Vanguard portfolios since 1991. It is responsible for US$24bn (£16bn) in assets across 18 investment strategies.
Provider view:
Vanguard’s head of sales Nick Blake said: “If an investor decides to only go after a certain part of an index such as value, what some people call ‘smart beta’, they are making an active decision.
“We’re not tracking an index in these funds. These products go away from the market consensus, and the manager is actively stock-picking.
“We run US$3.5trn (£2.3trn) of funds and a third is active. What we really are is the low-cost manager. We can do good quality, active low cost that’s a good outcome for investors.
“The smart beta label is unhelpful because it could lure investors into thinking they are buying an index product when they should be taking active-type decisions.
“In the long run the evidence would say there is a better return on these factors that we have just launched. This is a far more transparent way of getting the active exposure – this is a much sharper, cleaner, more transparent version.”
Adviser view:
Scott Taylor, an IFA at Buckinghamshire-based Brilliance Financial Planning, said: “I think to some extent the fact that it is an ETF is irrelevant. It is just a structure, and I cannot really see why it would need to be in an ETF. I am undecided as to whether it is an ETF or an open-ended structure.
“I would guess they are aimed at the institutional market. You do not launch ETFs primarily to focus on the retail market because lots of retail investors are not buying ETFs. They are more usually buying funds, and are pushed towards conventional funds.
“In many ways it is a marketing exercise. I welcome anyone saying we are going to be doing a particular job for less money. Whether they have got any more expertise than anybody else, that is another matter, but I suppose if you want active management you have a considerable saving on a conventional active manager.”
Charges
A charge of 0.22 per cent.
Verdict
Vanguard is pitching itself to a market that is actively questioning the fees charged by conventional active managers. It is using the ETF structure, but in many ways these are active funds, and the company is using the ETF brand to create a low-cost product. As with any active product, its success will be determined by stock selection and performance over time.
