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Vanguard drops factor ETFs while iShares thrives

Vanguard's factor ETF range will stop trading on 23 February
Vanguard drops factor ETFs while iShares thrives
  • Vanguard streamlines ETF range
  • Value, momentum, minimum volatility and liquidity factor ETFS to close

Passive investing giant Vanguard is closing all of its London-listed factor exchange traded funds (ETFs) due to "insufficient demand" that saw it fail to keep up with rivals at BlackRock’s iShares.

The four ETFs had a combined $360m (£264m) in assets under management as of 14 January, and will stop trading on 23 February at 2pm. The funds closing are:

The ETFs are still currently available to buy on the major platforms, but those invested in the funds on their final trading day will receive their net proceeds in cash, based on each ETF's net asset value on 25 February.

The largest of the four funds is Vanguard Global Value Factor ETF, with $211m in assets on 14 January. The fund was in Investors’ Chronicle’s 2020 Top 50 ETFs list in part because of its low costs. Its performance has been relatively strong, with the ETF returning 73 per cent over the past five years compared with 50 per cent for iShares Edge MSCI World Value ETF (IWVL).

Despite better performance, Vanguard’s value factor ETF’s size pales in comparison to its iShares counterpart, which has $3.45bn in assets, having attracted over £690m of net inflows in 2020 alone according to Morningstar data.

The relative size of the two suggests that investors are not as price sensitive as you might expect. Vanguard charges 0.22 per cent for its factor ETFs while iShares charges 0.3 per cent.

Comparing the two provider’s global momentum ETFs, iShares stacks up better on both performance and size. Vanguard’s momentum ETF has failed to reach the $100m mark while iShares Edge MSCI World Momentum Factor UCITS ETF (IWMO) has assets of $2.64bn. The former is up 118 per cent over five years to 14 January with the latter up 143 per cent.  

When Vanguard launched its factor ETFs in December 2015 it said they were “a compelling alternative to high-cost active strategies that target similar exposures,” but a spokesperson confirmed the reason for the closure of the funds was “insufficient interest” across Europe. 

Other Vanguard product ranges remain, beyond its conventional passive offerings. The firm’s four active open-ended funds - Global Equity fund (GB00BZ82ZT69), Global Equity Income fund (GB00BZ82ZS52), Active UK Equity fund (GB00BK1XRK60) and Global Emerging Markets fund (GB00BZ82ZY13) - will remain open, with a combined £367m in assets. 

While Vanguard has struggled to gain traction in the factor space, its core ETF business has done well attracting net assets of £5.8bn in 2020 across 25 London-listed ETFs, which have a total value of £48.7bn, according to Morningstar.

iShares has 253 ETFs listed in London with over £365bn in assets. The Financial Times reported last week that global ETF assets jumped 25 per cent in 2020 to a record $7.6tn, thanks to a combination of strong inflows and rising markets.