Vanguard recently launched a suite of low-cost, actively managed factor exchange-traded funds, making a late entry in a crowded field. The firm’s Quantitative Equity Group, which manages the new funds, has managed similar factor ETFs listed in Europe since December 2015. Most competing factor ETFs are index-based, a group of funds we refer to as "strategic beta," and are often marketed as “smart beta.” Vanguard has notably shied away from such ETFs, arguing that active implementation of factor strategies can be more cost-efficient and that investors should think of these as active strategies.

These new factor ETFs are not active in the traditional sense. They are systematic, rules-based strategies, so there are no qualitative judgments about the investment merit of each stock. But the managers have discretion to rebalance the portfolios (or not) when they see fit to balance the costs of trading against the benefits.