Vanguard Takes a Bold Step into Active ETFs

Vanguard is making a significant move by introducing three new actively managed exchange-traded funds (ETFs). These ETFs will be overseen by experienced managers who already handle some of Vanguard's most well-known mutual funds, like Vanguard Dividend Growth. This marks Vanguard's first attempt at active ETFs managed by stock pickers, and it's also a first for Wellington Management, a key partner. Why is Vanguard doing this? Well, many investors have been moving their money from mutual funds to ETFs because they are cheaper and more tax-efficient. This shift benefits both Vanguard and its clients. Investors get lower fees and potentially better long-term performance, while Vanguard gains a more attractive product to offer. The new ETFs won't be entirely new. They will use similar strategies and managers from existing Vanguard mutual funds. For example, Peter Fisher will manage the Vanguard Wellington Dividend Growth Active ETF, using a process similar to the one he uses for the Vanguard Dividend Growth Fund. Similarly, Michael Masdea and Brian Barbetta will manage the Vanguard Wellington U. S. Growth Active ETF, focusing only on U. S. stocks. David Palmer will oversee the Vanguard Wellington U. S. Value Active ETF, following a strategy similar to the one he uses for the Vanguard Windsor Fund. These ETFs will also have competitive fees. The expense ratios for the Vanguard Wellington U. S. Growth Active ETF and the Vanguard Wellington U. S. Value Active ETF are expected to be among the lowest in their categories. The Vanguard Dividend Growth Fund's expense ratio is also quite low, just outside the cheapest quartile of its category. Vanguard has dabbled in actively managed ETFs before, but these new funds represent a more significant push into the space. However, the ETF market is highly competitive. Just offering new ETFs doesn't guarantee success. Vanguard will need to ensure that its distribution plans, investment processes, and managers are top-notch to stand out in this crowded market.