A sound investment process and strong management team underpin Vanguard US Multifactor ETF's Morningstar Medalist Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy's effective investment philosophy supports a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in yield exposure and an underweight in liquidity exposure compared with category peers. High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. And a low liquidity exposure is rooted in stocks with lower trading volumes, limiting managers' flexibility. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm a High Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Alphabet

Marathon Petroleum

Wells Fargo

Valero Energy

AbbVie

McKesson

Aflac

Nucor

Applied Materials

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. Vanguard US Multifactor ETF earns a High Process Pillar rating. 

The leading factor in the rating is its parent firm's excellent long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.6 stars. The parent firm's five-year risk-adjusted success ratio of 73% also supports the rating. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. Their respectable success ratio suggests that the firm does well for investors and that this fund may benefit from that. Strong risk-adjusted performance also reinforces the process, as shown by the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk.

 This strategy, over time, has consistently held more undervalued companies, compared with peers in the Mid-Cap Blend Morningstar Category. But in terms of size exposure, it is similar to the average. Looking at additional factor exposure, this strategy has continually displayed high-yield exposure compared with Morningstar Category peers during recent years, holding more companies returning cash to shareholders via dividends or buybacks. High-yield stocks tend to be associated with more mature, profitable businesses that can grow as well as provide a stream of income. Such stocks could suffer, however, if setbacks force them to cut their dividends. In recent months, the strategy was more exposed to the Yield factor compared with its Morningstar Category peers as well. Given the low trading volume of holdings, this strategy also has higher liquidity risk exposure in these years, consistently over its peers. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In the most recent month, however, the fund's Liquidity exposure was in line with the Morningstar Category average. During the last few years, this strategy has also tilted in favor of high-quality stocks, those that have demonstrated low financial leverage and solid return on equity. Though it may trail peers during an economic boom, this orientation contributes to helping it weather periods of economic stress better. In this month, the strategy also had more exposure to the Quality factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in energy and consumer cyclical relative to the category average by 8.5 and 4.6 percentage points, respectively. The sectors with low exposure compared to category peers are real estate and industrials, underweight the average by 5.7 and 5.5 percentage points of assets, respectively. The strategy owns 511 securities and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 9.7% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category’s 15.4% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 37% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

High

Process

The fund earns an Above Average People Pillar rating. Even though this strategy’s track record dates back to February 2018, the listed management team joined within the past three years. Therefore, the track record achieved under the previous team is not representative of the fund’s current merits.

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

Above Average

People

The Vanguard Group retains a High Parent rating. 

Mutual ownership, low costs, and a direct-to-investor playbook have helped spur Vanguard's leadership within the United States. Client service missteps notwithstanding, Vanguard over the past decade has grown its market share of U.S. open-end and exchange-traded fund assets at about a 5% annualized clip. At that rate, Vanguard's portion of the U.S. industry will cross 50% around 2035.

True, some competitors can now match or even undercut Vanguard on fees for broad market exposure. But Vanguard's burgeoning advice business could help it keep or even extend that lead. Through Digital Advisor and Personal Advisor Services, Vanguard has built an increasingly compelling ecosystem of advice for investors with simple to complex needs.

Vanguard is also using its advice business to expand overseas, but that's a work in progress. Of Vanguard's USD 7.6 trillion in global assets under management in March 2023, non-U.S. investors owned less than 10%, a figure that has changed little in recent years. Strategic shifts in China and other markets account for the slow pace, including returning money to institutions that had been layering on fees. Vanguard hopes to recoup that money and more by focusing on individual investors and the advisors who serve them. Provided Vanguard sticks to its playbook, its advantages should translate into success abroad, too.

Parent

Vanguard U.S. Multifactor ETF

VFMF is an actively-managed fund that invests in US equities exhibiting value, momentum, quality and low volatility factors.

Vanguard U.S. Multifactor ETF is an actively managed fund holding about 500 stocks selected by proprietary factor-based rules. VFMF is better diversified than the benchmark across sectors and holdings, and it shows better aggregate valuation and growth metrics. VFMF has lagged behind the benchmark and larger multifactor ETFs since inception but has performed well relative to peers in the last 12 months.

VFMF: Multifactor ETF With Attractive Fundamentals, But Lagging Competitors

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With so many small and mid-cap ETFs out there, which might be the best to own right now. I'll restrict this analysis to Vanguard ETFs which seem to have a reasonable exchange policy and which offers among the best returns over the long term. My top choices are based on which Vanguard ETF have shown the best returns over the last five years, with the admonition that past returns may not predict the future.

Vanguard Has 17 Small And Mid-Cap ETFs. Which Are Best Right Now?

Vanguard U.S. Minimum Volatility ETF

Most investors have never heard of so-called "factor funds" but four of five such Vanguard factor funds have outperformed Vanguard ETFs of similar composition. Factor funds focus on portfolios that have stocks with past characteristics such as momentum, quality, and low volatility. Outperformance has been consistent since inception, except for a fund with a focus on low volatility.

You'd Be Surprised Which Four Vanguard ETFs Have Consistently Beaten Their Category Averages

Quantitative multi-factor investing is gaining popularity, but most approaches attempt to select stocks that score well on every factor. The Vanguard U.S. Multifactor ETF selects stocks based on momentum, quality, and value, but its returns have been modest over the long run. In contrast, the Invesco Russell 1000 Dynamic Multifactor ETF uses a dynamic approach based on the business cycle and has historically outperformed VFMF.

VFMF: Low-Cost Approach To Multi-Factor Investing

VFMF is a multi-factor fund providing equal balance to the momentum, quality, and value factors. Its selection universe is the Russell 3000 Index, and its expense ratio is 0.18%. Unfortunately, my analysis reveals VFMF does a poor job balancing these three factors. Instead, it has a strong value lean, evidenced by a 14.16x forward P/E. Among 154 Total Market Blend ETFs, VFMF's value score ranks #10, but its profit score ranks #123. These rankings help explain its substantial underperformance vs. IWV since its 2018 launch.

VFMF: Vanguard's Multifactor ETF Is Just Value In Disguise

Mid-cap and small-cap stocks have historically outperformed large-cap stocks, suggesting potential for alpha generation in the mid-cap segment of the US stock market. The Vanguard U.S. Multifactor ETF could be a suitable option for investors looking to switch to mid-cap exposure, as its mid-cap value stocks have outperformed large-cap stocks in the past three years. Investors should consider factors such as market cap, growth vs value stocks, sector allocations, and active or passive stock selection when comparing alpha-generating ETFs.

VFMF: Top Quant Ranked Multifactor Mid-Cap ETF

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Bull vs. Bear is a weekly feature where the VettaFi writers' room takes opposite sides for a debate on controversial stocks, strategies, or market ideas — with plenty of discussion of ETF ideas to play either angle. For this edition of Bull vs.

Bull vs. Bear: Do Multifactor ETFs Make Sense for Today's Market?

VFMF is an actively-managed multi-factor ETF emphasizing momentum, quality, and value, after applying a volatility screen to eliminate the market's most volatile stocks. Oddly, VFMF has underperformed three other Vanguard ETFs that emphasize these factors individually. In this case, the whole is less than the sum of the parts.

VFMF: Exploring Why Vanguard's Multifactor Approach Hasn't Worked

VFMF selects U.S. stocks from all size segments based on recent price momentum, quality, and price. VFMF is actively-managed with a low 0.18% expense ratio. Interestingly, the strategy includes eliminating highly-volatile stocks. However, VFMF's current five-year beta is still high at 1.15, and historical standard deviation is also above broad-market ETFs.

VFMF: Actively-Managed Deep Value ETF, What Could Go Wrong?

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Factor investing is an alternative to indexing and active investing that has outperformed the market in the past.

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The value versus growth debate continues to rage in when it comes to factor investing, but there’s a case to be stated for not only both, but all factors.

Combining Factors May be a Better Option Than Just Value Itself

About 18 months ago, Vanguard got into factor-based exchange traded funds with six actively managed, though still cost-effective funds.

News for Vanguard U.S. Multifactor ETF ETF (VFMF)