Vanguard, in a First, Closes an ETF

Vanguard, the No. 2 U.S. exchange-traded fund issuer, is closing its $42 million Vanguard U.S. Liquidity Factor ETF (VFLQ), its first ETF to close since the firm entered the market 21 years ago.

The issuer, with $1.8 trillion in assets under management, said in a statement that the fund, the smallest in Vanguard’s lineup of 82 ETFs, “has not gained scale since its 2018 debut” and would be closed on or around Nov. 22. VFLQ is part of the lineup of so-called factor ETFs Vanguard rolled out as its foray into actively managed ETFs in the U.S. market.

Vanguard continues to “eliminate funds that lack a distinct role in investors’ portfolios,” Dan Reyes, head of Vanguard’s Portfolio Review department, said in a statement. The fund was managed by John Ameriks, global head of Vanguard’s Quantitative Equity group, and had a 0.13% expense ratio, according to Vanguard’s fund description page. It’s gained 5.73% since its launch, less than the Russell 3000 Index, which gained 9.64% over the same period.

Vanguard’s first ETF was the Vanguard Total Stock Market ETF (VTI), issued in 2001. The issuer’s ETFs average around $22 billion each in assets under management. BlackRock Inc., with 400 ETFs managing around $2.1 trillion, is the No. 1 issuer in the U.S.

Factor ETFs seek to minimize risk by choosing investments based upon characteristics like value, momentum, liquidity and more. At Vanguard, the liquidity factor was considered an alternative to the small size factor.

The funds grew slowly, which was uncharacteristic at Vanguard. The firm focuses on core asset classes and is strategic with respect to product launches. VFLQ’s top holding was electronics maker Amphenol Corp.

So far this year, 115 ETF closures were announced or completed, compared with 79 for all of last year, which was the slowest year for closures in roughly a decade.

Contact Heather Bell at [email protected]