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

Most people think of Vanguard as the issuer of ultra-low-cost, plain vanilla index funds and exchange-traded funds (ETFs). They're boring (in the best sense of the word) but have helped millions create long-term wealth through straightforward, cheap broad market exposure.

But over the past few years, Vanguard has increased its presence in the active fund space. In fact, of the 19 ETFs Vanguard has launched in either 2024 or 2025, 10 are actively managed. One of the company's more intriguing launches actually came in 2018, when it debuted its lineup of actively managed factor ETFs.

Included are individual ETFs focused on the value, quality, momentum, and low volatility factors, but it's the Vanguard U.S. Multifactor ETF (VFMF +0.12%) that takes all of them into account in a single product. It's a strong way to capture a hedge fund-like factor strategy without paying the hedge fund-like fees.

Because the Vanguard U.S. Multifactor ETF is actively managed, its specific strategy is a bit of a mystery. But here's what we do know about how the stock selection process works:

From there, stocks are selected and weighted based on their combined factor scores. Overall, the portfolio aims to maintain a roughly equal weighting between large-, mid-, and small-cap stocks.

It's important to point out that this is a true actively managed fund. Some funds will have large allocations to tech stocks or the Magnificent Seven names specifically. This can give the illusion of active management, but in reality look more like an index fund.

This fund only has a 22% overlap with the Russell 3000 index, ensuring that investors get something different that can pair well with broader index funds.

The Vanguard U.S. Multifactor ETF doesn't look like the typical U.S. equity index. That's a good thing. Its unique exposure to factors that have the ability to outperform over time gives it an opportunity to enhance overall risk-adjusted returns.