Active ETFs have clearly become the fund vehicle of choice for many investors and their advisors. Today, billions of assets continue to flow into active ETFs, while new funds are launched at a feverish pace. The sheer growth in active ETFs hasn’t gone unnoticed. Even by one of the staunchest supporters.
We’re talking about passive pioneer Vanguard.
And now Vanguard’s latest suite of active ETFs takes a very decisively old-school approach. Ignoring derivatives or systematic strategies, Vanagurd’s newest active ETFs take a more traditional approach, with actual human beings selecting stocks. For active ETFs and investors, the move is significant in several ways.
A Great Active Manager
Jack Bogle did not actually invent index investing. That was technically Edward Renshaw, Paul Feldstein, and John Andrew McQuown. But Bogle popularized indexing with regular retail investors. Retail investors flocked to Vanguard’s early products that focused heavily on owning the market and passively growing wealth. It launched a movement, and since then, the asset manager hasn’t looked back. Today, Vanguard manages trillions of dollars and has some of the largest ETFs of any kind under its umbrella.
Because of its creation and early adoption, Vanguard and the concept of indexing go together like peanut butter and jelly. Not many asset managers can claim to have a loyal fan base that is all-in on passive investing for their entire portfolios.
So, it’s hard to believe that Vanguard also has a great suite of top-performing active mutual funds.
The key to Vanguard’s active funds is two-fold. First is its partnerships with specialist managers such as Wellington Management, PRIMECAP Management, and Oaktree Capital. These specialists have long histories of beating the market and tend to focus on fundamental research. Second is Vanguard’s commitment to low costs. While other managers were charging high fees for their active mutual funds, Vanguard still charged pennies. This allowed these managers to overcome fee hurdles and actually add additional alpha.
And now, Vanguard is bringing the same expertise and potential alpha generation to active ETFs.
In a filing, Vanguard announced the launch of three new active equity-focused ETFs: The Vanguard Wellington Dividend Growth Active ETF, the Vanguard Wellington US Growth Active ETF, and the Vanguard Wellington US Value Active ETF. The funds will be managed by Wellington and focus on dividend, growth, and value stocks, respectively. 1
Stock Picking?
What’s interesting isn’t that Vanguard is embracing active management. It’s how it’s doing it. These new ETFs will focus on something that most active equity ETFs don’t actually do. And that’s having a human directly pick stocks.
When most investors hear the word “active,” that’s precisely what they are thinking about. A team of analysts poring over spreadsheets, press releases, and balance sheets to find great companies to buy. As an investor, you are placing your hard-earned dollars on their skill at finding these opportunities.
But that hasn’t been the case with active equity ETFs.
Many active ETFs, including some huge and popular ones, actually fall under so-called systematic or enhanced index strategies. Two of the largest active ETF managers, Avantis and Dimensional Fund Advisors (DFA), exclusively use a systematic strategy for all their funds.
These strategies take an index and apply small active masses to the benchmark. This can include applying value screens, looking for strong balance sheets, or scoring momentum and dividend yields. Managers use these systematic elements to purchase stocks or bonds to tweak an index. This differs from smart beta, which creates a new index using fundamentals and then lets it ride. Systematic strategies remain an active choice, with managers buying/selling within their framework.
Even Vanguard’s previously launched active equity ETFs have taken an enhanced index approach to getting equity exposure.
With the latest funds, however, Vanguard is going back to basics. That’s significant given the trends in active ETFs. The firm may have just hit on something.
The mutual funds that these new ETFs are based on are either existing Vanguard mutual funds or those managed by analysts who work on sleeves in Vanguard’s multi-asset funds. The track records for these funds, such as the Vanguard Dividend Growth (VDIGX), have been stellar. Additionally, the fee hurdle for these new active ETFs is very low, with fees ranging from 0.30% to 0.40%. While that may seem high for Vanguard, it’s still rock-bottom for active ETFs and mutual funds. This should help create a low fee hurdle that could lead to outperformance.
Moreover, the new ETFs will eliminate cash drag, offer lower tax exposure, and deliver enhanced performance. Historically, copycat ETFs of existing mutual funds tend to outperform.
Vanguard’s New Active Era
With its pending launch, Vanguard could once again rewrite the world of investing- by bringing old-school stock picking to active ETFs and the retail masses. Thanks to its name brand and low costs, the new launches could quickly gather assets and help build upon Vanguard’s active suite. This chart from Morningstar shows that Vanguard only has around $16 billion in active ETF assets. A drop in the bucket compared to the $10 trillion it has overall.
Source: Morningstar
Vanguard Active ETFs
These ETFs are selected based on Vanguard’s active management expertise. They are sorted by their YTD total return, which ranges between -2.5% and 1%. Their expense ratio ranges from 0.10% to 0.18%, while their AUM is between $48M and $4.1B. They are currently yielding between 1.1% and 5.2%.
| Ticker | Name | AUM | YTD Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| VFMO | Vanguard U.S. Momentum Factor ETF | $319M | 1% | 1.1% | 0.13% | ETF | Yes |
| VFMV | Vanguard U.S. Minimum Volatility ETF | $89M | 1% | 2.4% | 0.13% | ETF | Yes |
| VCRM | Vanguard Core Tax-Exempt Bond ETF | $80.8M | 0.9% | 2.9% | 0.12% | ETF | Yes |
| VSDM | Vanguard Short Duration Tax-Exempt Bond ETF | $48.2M | 0.9% | 3.1% | 0.12% | ETF | Yes |
| VUSB | Vanguard Ultra-Short Bond ETF | $4.09B | 0.2% | 5.2% | 0.10% | ETF | Yes |
| VFQY | Vanguard U.S. Quality Factor ETF | $224M | -0.1% | 1.6% | 0.13% | ETF | Yes |
| VFMF | Vanguard U.S. Multifactor ETF | $168M | -0.4% | 1.9% | 0.18% | ETF | Yes |
| VCRB | Vanguard Core Bond ETF | $63M | -1.2% | 4.2% | 0.10% | ETF | Yes |
| VFVA | Vanguard U.S. Value Factor ETF | $589M | -2.5% | 2.7% | 0.13% | ETF | Yes |
Ultimately, Vanguard has a long history of top-notch active stock picking. And now, it has the potential to bring that to active ETFs. With its pending launches, the firm could accumulate significant assets and break free from the systematic strategies currently dominating active stock ETFs.
Bottom Line
Vanguard and indexing go hand-in-hand. But its latest active ETF launches are all about stock picking. But investors shouldn’t worry. Thanks to their low costs and a history of underperformance, these new funds and their managers should be able to provide additional alpha to a portfolio.
1 Bloomberg (August 2025). Vanguard Plans for Its Most Expensive ETFs Yet in Active Push
