Vanguard plans to launch its first active stock-picking ETFs

Vanguard, with its largest and oldest subadvisor, Wellington Management enters a new era

Passive-investment management leader Vanguard plans to launch its first actively managed U.S. stock exchange-traded funds this year, according to filings with regulators on Monday.

The company, which pioneered low-cost, no-frills index-based investment products, intends to roll out actively-managed ETF versions of three of its existing mutual funds. In other words, the three ETFs won’t be completely new. All will use Wellington managers who currently oversee Vanguard mutual funds, and they will borrow aspects of existing investment processes.

Vanguard Wellington Dividend Growth Active ETF VDIG has the clearest lineage back to a mutual fund. Wellington’s Peter Fisher is expected to follow a process similar to the one he employs at Vanguard Dividend Growth Fund and Vanguard Advice Select Dividend Growth Fund VADGX. Michael Masdea and Brian Barbetta will manage Vanguard Wellington U.S. Growth Active ETF VUSG with a similar approach they use on Wellington’s sleeve of Vanguard Global Equity Fund VHGEX. However, they will limit holdings to US stocks. Finally, David Palmer will oversee Vanguard Wellington U.S. Value Active ETF VUSV following a similar process he employs on Wellington’s portion of Vanguard Windsor Fund VWNDX.

While Vanguard has rolled out a handful of active bond ETFs, the new products mark its first push into stock-picking ETFs. They will target dividend growth, growth stock and value stock investment strategies, Vanguard said.

There has been a torrent of new ETFs this year from asset managers trying to capture growing demand for actively managed ETFs that aim to outperform indexes. Actively managed ETFs arose around six years ago.

The good thing with this one is that all three will also sport Vanguard-like fees. The advent of this strategy in a more tax efficient and lower-cost ETF wrapper has attracted growing investor interest.

Morningstar Direct calculates that there have been 630 new exchange-traded products so far this year, compared to 381 for the same period in 2024. Some 86% of those launches were of actively managed strategies, according to a report published this month by JP Morgan Asset Management, which also found that active ETFs now account for some 37% of total U.S. ETF inflows.

"Until now, Vanguard had been sitting out this rush," said Jeff DeMaso, editor at the Independent Vanguard Advisor.

DeMaso said he expects the new funds will attract a steady if not spectacular flow of assets. "These are proven strategies," he added.

The new ETFs are "building blocks that reflect our commitment to disciplined product development and investor outcomes," said Ryan Barksdale, head of active equity product at Vanguard, in a statement.