Vanguard’s Push Into Active Is Anything But Passive

As noted in Advisor Perspectives, Vanguard is making a concerted push towards active management strategies, with new filings for active equities ETFs. Forthcoming will be the Vanguard Wellington Dividend Growth Active ETF (VDIG), the Vanguard Wellington US Growth Active ETF (VUSG), and the Vanguard Wellington US Value Active ETF (VUSV) to round out the active trio. VDIG is an ETF spinoff of an existing mutual fund, while VUSG is essentially an active reincarnation of the Vanguard Growth ETF (VUG B+), and VUSV is a new fund that tilts towards a single-factor strategy (value in this case) in an active sleeve.

VDIG will have an expense ratio of 0.40%, VUSG at 0.35%, and VUSV comes in at 0.30%. While this might appear to run counter to Vanguard’s bread-and-butter strategy of offering low cost funds, it’s important to note that they still fall below the industry average expense ratio of 0.76% in funds with active strategies — essentially half of that average. The move comes at a time when asset managers are releasing active funds at a record pace, outdoing their passive counterparts when it comes to new fund launches this year.

Aside from the active strategies, an obvious common denominator is the name Wellington. That would be investment firm Wellington Management, which was founded in 1928 and, in 1951, hired John C. Bogle, who would then go on to establish the Vanguard Group in 1975. Needless to say, Vanguard and Wellington have a history together, and the former is tapping into the deep well of asset management expertise in the latter to create these new ETFs.

“By combining Wellington’s active management expertise with the structural benefits of ETFs, we’re aiming to deliver low-cost, active, transparent, and tax-efficient solutions for today’s investors,” said Ryan Barksdale, Vanguard’s head of active equity product.

“We are excited to build upon our longstanding partnership with Vanguard, bringing a series of proven, fundamental active equity approaches to individual investors in the ETF wrapper,” Kim Gailun, head of equity boutiques at Wellington, said.

The move towards bolstering its active ETF lineup in equities comes as the firm has already released new funds in fixed income this year. That includes the the Vanguard Short Duration Bond ETF (VSDB ), the Vanguard Multi-Sector Income Bond ETF (VGMS ), and the Vanguard Government Securities Active ETF (VGVT ). This brings their total number of active fixed income funds to eight.

VSDB offers exposure to short-term bonds to mitigate rate risk with a low expense ratio of 0.15%. That makes the fund competitive with even its passive counterparts.

VGMS is an ideal choice for those seeking income diversification. With its 0.30% expense ratio, VGMS seeks income from a variety of avenues in order to maximize yield. The potential for rate cuts could mean falling yields and as such, VGMS can help bridge the income gap in an active ETF wrapper.

Lastly, VGVT distinguishes itself from other government bonds with its diversified holdings. Rather than stick to specific maturity date ranges inherent in short-, medium-, or long-term bond funds, VGVT invests across a variety of maturities. While the fund mainly focuses on Treasuries, it will also invest in other agency-backed securitized products for further diversification. It also boasts the cheapest expense ratio of the three, at 0.10%.

Of course, the active management component is the prime benefit of this trio. The Vanguard Fixed Income Group can adjust the holdings of each fund to suit current market conditions. This allows for flexibility in seeking income opportunities and allowing for portfolio adjustments to maximize upside or mitigate the downside.

For more news, information, and analysis, visit the Fixed Income Content Hub.