Key insights
- This article discusses the Vanguard U.S. Momentum Factor ETF (VFMO), an under-the-radar actively managed fund that has consistently outperformed the S&P 500. The ETF uses a quantitative model to select stocks with strong recent performance over seven- and 12-month periods, aiming to identify sustainable momentum patterns. While the fund has strong performance, its low profile and Vanguard's limited promotion suggest it has minimal direct impact on broader market sentiment or immediate U.S. equity movements.
Most investors know Vanguard for its lineup of ultra-cheap index funds. But it's a small, under-the-radar, actively managed exchange-traded fund (ETF) that's been steadily beating the S&P 500.
The Vanguard U.S. Momentum Factor ETF (VFMO +3.97%) doesn't get much attention, and Vanguard doesn't really promote it. It's part of the company's factor ETF lineup that it launched in 2018. It includes five active funds managing a combined $4 billion, a success story for most issuers, but not by Vanguard standards.
In terms of performance, though, the Vanguard Momentum Factor ETF has been a hit. And it needs to be considered for more portfolios.
Vanguard uses a rules-based quantitative model to select stocks of all sizes with strong recent performance. In defining "momentum," it looks at a stock's total return compared to its relevant benchmark over the past seven- and 12-month periods.
By looking at performance over shorter and longer time frames, it aims to identify sustainable momentum patterns instead of just short-term bounces. Stocks are then weighed by their momentum factor.