VFMF ETF

Factor investing, despite mixed results, remains intriguing. The Vanguard U.S. Multifactor ETF targets value, momentum, and quality to potentially outperform the broader U.S. market. VFMF's rule-based, non-market-cap approach allows dynamic adjustments, offering diversification with a mid-cap tilt and lower valuation metrics compared to the Russell 3000. The fund actively allocates sectors, notably underweighting technology and overweighting financials, which could be advantageous given current market conditions.

VFMF is a Vanguard ETF aiming to beat the market by focusing on stocks with strong price performance, superior fundamentals, and cheap prices. Factors used include value, momentum, and quality, with a focus on screening out high volatility stocks. Sector breakdown, portfolio fundamentals, and key stats of top holdings reveal potential risks and uncertainties, warranting a hold rating due to lack of support of information by Vanguard.

Vanguard U.S. Multifactor ETF is an actively managed fund holding about 500 stocks selected by proprietary factor-based rules. VFMF is better diversified than the benchmark across sectors and holdings, and it shows better aggregate valuation and growth metrics. VFMF has lagged behind the benchmark and larger multifactor ETFs since inception but has performed well relative to peers in the last 12 months.

Quantitative multi-factor investing is gaining popularity, but most approaches attempt to select stocks that score well on every factor. The Vanguard U.S. Multifactor ETF selects stocks based on momentum, quality, and value, but its returns have been modest over the long run. In contrast, the Invesco Russell 1000 Dynamic Multifactor ETF uses a dynamic approach based on the business cycle and has historically outperformed VFMF.

VFMF is a multi-factor fund providing equal balance to the momentum, quality, and value factors. Its selection universe is the Russell 3000 Index, and its expense ratio is 0.18%. Unfortunately, my analysis reveals VFMF does a poor job balancing these three factors. Instead, it has a strong value lean, evidenced by a 14.16x forward P/E. Among 154 Total Market Blend ETFs, VFMF's value score ranks #10, but its profit score ranks #123. These rankings help explain its substantial underperformance vs. IWV since its 2018 launch.