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There were so many good reasons for Vanguard to fold its first ETF but radical underperformance may stand out for the 'illiquidity' fund

The Malvern, Pa., manager blamed $44-million fund's scale, but marked underperformance and a manager departure as likely doomed it, one Vanguard watcher says

Author Brooke Southall September 27, 2022 at 1:51 AM
1 Comment
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Dan Reyes: 'Despite the ETF’s capable advisor and sound approach to factor investing, it has not gained scale since its 2018 debut.'


Brian Murphy

Brian Murphy

September 27, 2022 — 4:48 AM
To me this is a case of not giving the fund enough time to reach its potential, performance-wise. Here's why: over the last 3-5 years, investors have focused on the most liquid names in the U.S. investment landscape...names like Apple, Netflix, Microsoft, etc., (essentially the big kahunas in the S&P 500) to the detriment of the rest of the market (and the holdings of this fund in particular). Comparing the U.S. Liquidity Factor ETF to the performance of the VTI is flawed from that perspective in that their investment universes are almost diametrically opposed! My guess is that one would need to runway of at least a full market cycle (typically 6-15 years) in order to prove out a thesis of there being "alpha" in illiquid names. But most advisors and investors don't have the stomach for such time tables. Unfortunate, but that's the way the cookie crumbles.

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