While these funds attempt to take advantage of specific stock characteristics, they're not for the faint of heart.
What are factor-based funds?
Factor-based funds are a form of actively managed funds. They purposely "tilt" portfolios toward certain stock characteristics, like recent momentum, higher quality, or lower stock prices to achieve specific risk and return objectives.
But they come with significantly more risk than you'd experience investing in the broader stock market.
Who might invest in factor funds?
Factor funds may be appropriate for you if you're an experienced long-term investor who wants to pursue specific factors but are looking for more transparency than you'd find in a traditional actively managed fund.
While we don't expect any of these funds to serve as your core investment, you may use them to tilt a portion of your portfolio in an attempt to augment its performance.
Factor timing is extremely difficult, and strategies that attempt to do so are ill-advised. So be sure you have the long-term patience needed to stick with a factor-based investment strategy.
A FEW THINGS TO THINK ABOUT BEFORE YOU INVEST
Factor funds are high-risk investments that should be used only by investors who:
- Fully understand the risks and potential benefits of each factor.
- Can financially and emotionally handle higher degrees of risk.
- Consider these funds to be long-term investments.
Factor returns can be cyclical, so you could experience sharp and lengthy periods of underperformance compared with the broader stock market.
If you have questions about whether factor funds might help meet your investment goals, we strongly recommend that you consult with a qualified investment advisor.
Vanguard's approach to factor-based investing
We take a deliberate approach when developing factor funds, choosing to target only those factors that have undergone exhaustive analysis and that we believe could have long-term benefits for our investors.
These new funds will take a transparent, rules-based approach to offering consistent exposure to specific factors. And of course, all our factor funds are offered at the low costs you'd expect from us.
After extensive research, we've created funds focused on these 6 factors based on their potential for long-term capital appreciation:
Minimum volatility
For investors who want to focus on stocks with lower volatility relative to the broad U.S. stock market.
Value
For investors who want to focus on stocks that have relatively lower share prices relative to their fundamental values.
Momentum
For investors who want to focus on stocks with strong recent performance.
Quality
For investors who want to focus on stocks with strong fundamentals, which may include higher operational earnings and balance-sheet quality.
Multifactor
For investors who want to focus on stocks that combine relatively strong recent performance, strong fundamentals, and low prices relative to fundamentals.
This is being offered as both an ETF and a mutual fund.