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

 The strategy's investment process inspires confidence and earns a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in momentum exposure and yield exposure compared with category peers. Momentum exposure is attributed to holding stocks currently on a winning streak and selling those that are on a downtrend. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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

Uber

General Electric

Cadence Design Systems

Palo Alto Networks

NVIDIA

Eaton

Broadcom

Synopsys

Oracle

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 Momentum Factor ETF earns a High Process Pillar rating. 

The main driver of the rating is its parent firm's impressive 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 75% also strengthens the process. 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 commendable success ratio suggests that the firm does well for investors and that this fund may benefit from that. Strong risk-adjusted performance also supports the rating, 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 skews toward smaller, deeper value companies compared with its average peer in the Mid-Cap Growth Morningstar Category. Examining additional factor exposure, this strategy has continually had exposure to high-momentum stocks compared with Morningstar Category peers in the last few years. Momentum approaches bet that rising stocks will continue to rise and that lagging stocks will continue to lag. In recent months, the strategy was more exposed to the Momentum factor compared with its Morningstar Category peers as well. This strategy has also displayed a tendency to hold more companies with high dividend or buyback yields than peers over recent years. Stocks with high yields can be more stable, mature companies, but at times extreme market pressure or fundamental deterioration may prompt them to cut their dividends, which tends to hurt stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. This strategy also has tilted toward low-quality stocks, companies with higher financial leverage and lower profitability over these years. Such positions do not tend to provide much ballast for a portfolio. In recent months, the strategy also had less Quality factor exposure than 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 industrials and consumer cyclical relative to the category average by 4.5 and 2.9 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and financial services, underweight the average by 5.5 and 4.0 percentage points of assets, respectively. The portfolio is composed of 550 holdings and is less top-heavy than peers. Specifically, 11.8% of the strategy's assets are concentrated within the top 10 fund holdings, as opposed to the category’s 25.8% average. And in closing, in terms of portfolio turnover, this fund trades more frequently than its average peer, potentially racking up additional expenses for investors and creating a drag on performance.

High

Process

The fund earns an Above Average People Pillar rating. This strategy has seen its entire listed management team change within the past three years. Even though this strategy dates back to February 2018, it's difficult to analyze the new team until they spend more time on the strategy.

 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. Momentum Factor ETF

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