The Vanguard ETF That Acts Like a Hedge Fund Without the Fees

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David Dierking, The Motley Fool

Mon, April 6, 2026 astatine 9:45 AM CDT 5 min read

Most radical deliberation of Vanguard arsenic the issuer of ultra-low-cost, plain vanilla scale funds and exchange-traded funds (ETFs). They're boring (in the champion consciousness of the word) but person helped millions make semipermanent wealthiness done straightforward, inexpensive wide marketplace exposure.

But implicit the past fewer years, Vanguard has accrued its beingness successful the progressive money space. In fact, of the 19 ETFs Vanguard has launched successful either 2024 oregon 2025, 10 are actively managed. One of the company's much intriguing launches really came successful 2018, erstwhile it debuted its lineup of actively managed origin ETFs.

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Included are idiosyncratic ETFs focused connected the value, quality, momentum, and debased volatility factors, but it's the Vanguard U.S. Multifactor ETF (NYSEMKT: VFMF) that takes each of them into relationship successful a azygous product. It's a beardown mode to seizure a hedge fund-like origin strategy without paying the hedge fund-like fees.

Two analysts pursuing the fiscal markets connected a machine screen.

The Vanguard U.S. Multifactor ETF uses a quantitative exemplary to prime stocks based connected the value, momentum, and prime factors.
It tin see companies of each sizes, making it a existent all-cap portfolio.
The fund's show has earned it Morningstar's highest 5-star rating.
Tech is lone the 4th largest assemblage holding. It hasn't relied connected the Magnificent Seven stocks to make its returns.

Because the Vanguard U.S. Multifactor ETF is actively managed, its circumstantial strategy is simply a spot of a mystery. But here's what we bash cognize astir however the banal enactment process works:

Volatility: The archetypal surface removes the apical 20% astir volatile stocks from wrong the large-, mid-, and small-cap universes.
Momentum: Stocks are measured by full returns implicit the anterior six months and 12 months comparative to their benchmark.
Value: The institution considers cardinal metrics, specified arsenic publication value/price, price/earnings, and currency flows/price.
Quality: The institution looks astatine instrumentality connected equity (ROE), gross profitability, alteration successful nett operating assets, and leverage.

From there, stocks are selected and weighted based connected their combined origin scores. Overall, the portfolio aims to support a astir adjacent weighting betwixt large-, mid-, and small-cap stocks.

It's important to constituent retired that this is simply a existent actively managed fund. Some funds volition person ample allocations to tech stocks oregon the Magnificent Seven names specifically. This tin springiness the illusion of progressive management, but successful world look much similar an scale fund.

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