There’s a lot to like about Vanguard U.S. Multifactor ETF (VFMF). (Full disclosure: I own this fund.) It targets stocks with the best combination of value, momentum, and quality characteristics. Each of these characteristics has historically been linked to market-beating performance, but they each go through extended periods of underperformance. Combining these factor strategies in a single portfolio helps diversify risk, making it easier to stick around long enough to benefit from these bets.
There are many multifactor funds on the market, but this fund stands out because it covers the full U.S. market-cap spectrum, while most of its peers focus on large-cap stocks. That not only improves diversification, but it should also help improve performance, as the payoff to factor investing has historically been greater among smaller stocks.
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Alex Bryan has a position in the following securities mentioned above: VFMF. Find out about Morningstar’s editorial policies.