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Vanguard is to close its four European actively managed exchange traded funds because of insufficient demand for the products.
The four Ireland-based ETFs have a combined £224m ($298m) in assets under management and provide exposure to four investment factors: value (VDVA), momentum (VDMO), low volatility (VDMV) and liquidity (VDLQ).
While each of the products is based on an investment factor, they are actively managed by Vanguard’s quantitative equity group, rather than tracking an index.
At the time of their launch five years ago Vanguard said the products were “a compelling alternative to high-cost active strategies that target similar exposures”.
However, Vanguard said it had written to shareholders to inform them of its intention to close the ETFs in February.
“Vanguard regularly reviews its product line-up to ensure it is meeting the needs and preferences of our investors. After careful evaluation and consideration, we have determined there is insufficient European investor interest in these funds,” Vanguard said.
The Global Value Factor Ucits ETF is £127m in size, but the other three products each manage less than £50m.
It is understood that in evaluating products Vanguard assesses where best to prioritise its resources as it seeks to expand across Europe.
Thomas Merz, Vanguard’s head of European distribution, has previously been critical of ETF providers launching too many products.
Asset managers do not need to offer “every single fancy-dancy product”, Mr Merz said.
Detlef Glow, head of Lipper research for Europe, the Middle East and Africa at Refinitiv, said Vanguard appeared to be “streamlining” its overall product offering.
“Factor ETFs haven’t had the same success in Europe compared [with] their peers in the US [and so] this move seems not only to be driven by the profitability of the funds but also a strategic decision to move out of factor-driven strategies,” Mr Glow said.
Helen Pridham, a UK fund sales specialist, said that while the take-up of ETFs in the UK was growing, the products are mainly used in portfolios to gain core or short-term, low-cost passive exposure, whereas the market for factor-based ETFs is “limited”.
The closures also point to the challenges Vanguard is facing in being seen as more than a provider of passive funds in Europe.
The news comes soon after it was revealed that Vanguard closed its actively managed US Fundamental Value fund as a result of its small asset pool.
“Vanguard is definitely seen as a passive fund house, but performance trumps everything, so if they can demonstrate good performance in their actively managed [open-ended investment companies], then investors and advisers will take notice,” Ms Pridham said.
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Vanguard continues to run six actively managed mutual funds in the UK, which have combined assets of £688m, as well as £25.9bn in five active funds of funds that invest in Vanguard’s passive products.
Vanguard said the closure of the active ETFs does not close the door on future product launches in Europe.
The firm said it “will continue to add new funds and ETFs to [its] range in line with the ongoing needs of our investors”.
Additional reporting by Joe Morris
Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at igniteseurope.com.
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