The Vanguard U.S. Liquidity Factor ETF is an actively managed fund that aims to invest in U.S. stocks that trade less frequently than others. This might seem like a strange objective since many money managers try to avoid illiquid securities so that they don’t get stuck with a position they can’t get out of. But illiquid stocks are, by their nature, hard to get a hold of and perceived as riskier, meaning they often trade at a premium. VFLQ relies on a quantitative methodology to evaluate U.S. companies of all sizes, and uses a rules-based screen to ensure diversification. Vanguard measures liquidity using percentage turnover, dollar turnover, and other metrics. Money managers have long recognized that certain factors, when deployed during certain market conditions, consistently reward investors. There are macroeconomic trends like economic growth and inflation, as well as fairly predictable performance patterns for certain types of stocks. For example, so-called value stocks — defined as companies with low share prices relative to their fundamentals — have historically outperformed the market over the long-term. Over time, money managers have devised methodologies to identify and exploit factors such as volatility, value, quality, liquidity, growth, and price momentum. Some funds combine factors while others, like VFLQ, target a single factor. Factor ETFs have proliferated in recent years and there are many active and passive ETF options that target different factors, though VFLQ is the rare fund specifically targeting liquidity. VFLQ’s portfolio can be expected to diverge from its Russell 3000 benchmark. For example, VFLQ holds a significantly narrower universe of stocks than Vanguard’s Russell 3000 ETF, a passive index-tracking fund that draws from the same universe of stocks. VFLQ’s fees are quite low for active management, but after decades of drilling investors in the futility of stock picking, it remains to be seen whether Vanguard can convince investors that some managers can consistently beat the market after all. Given the fund’s strategy and its narrower holdings, VFLQ probably isn’t a good pick to replace a core U.S. equity position. However, for investors with a strong liquidity conviction who want a reasonably-priced fund, VFLQ could augment a core U.S. equity. While VFLQ is quite reasonably priced, investors should compare price, performance, and portfolio against other factor funds, both active and passive, as well as plain-vanilla index funds.