Vanguard Global Liquidity Factor ETF (VLQ)

Transcription

1 Vanguard Global Liquidity Factor ETF () Product brief December 31, 2017 A global equity portfolio that seeks long-term growth by capturing the liquidity premium Product summary A long-only, broadly diversified investment strategy that invests in developed market equities. A portfolio that seeks significant exposure to the liquidity factor by investing in less frequently traded stocks. The liquidity factor has been shown to provide long-term outperformance. An actively managed ETF with a flexible investment strategy that can adapt to changing market conditions and achieve targeted exposure to less frequently traded stocks. Applications: This product may be suitable for investors with a long-term perspective and can be used as a satellite component to add alpha. Risks: Illiquidity risk. Key facts Ticker Management fee % MER % Inception date June 14, 2016 Style map Large Mid Exchange Currency Net assets Distribution schedule Toronto Stock Exchange CAD $18.9 M Annually Small Value Blend Growth Distribution per unit $ Eligibility RRSP, RRIF, RESP, TFSA, DPSP, RDSP 1 The management fee is equal to the fee paid by the Vanguard ETF to Vanguard Investments Canada Inc. and does not include applicable taxes or other fees and expenses of the Vanguard ETF. 2 Management Expense Ratio (MER) is the MER as of March 31, 2017, including waivers and absorptions and is expressed as an annualized percentage of the daily average net asset value. The MER would have been 0.42% without any absorptions or waivers. Vanguard Investments Canada Inc. expects to continue absorbing or waiving certain fees indefinitely, but may, in its discretion, discontinue this practice at any time. 3 may not sum to 100% due to rounding.

2 What is the liquidity factor? The liquidity factor was identified in research showing that less frequently traded stocks have earned higher s than stocks that are more frequently traded. One explanation for this phenomenon is that investors perceive less liquid securities as being more risky, and thus expect a premium for holding them. Why Vanguard Global Liquidity Factor ETF? Factor exposure. A dynamic quantitative approach aims to maintain consistent exposure to the liquidity factor. Stocks that are relatively less liquid have the potential to outperform more liquid stocks. The associated premiums come from the perception that these securities are riskier. Active management. The portfolio management team selects stocks and constructs the portfolio using quantitative models that are designed to achieve targeted exposure to the liquidity factor. In contrast to indexing s fixed rebalancing schedule, the team adjusts the portfolio as needed to maintain exposure to the factor while considering transaction costs. Low costs. Investors earn more when they pay less. The ETF s annual management fee is just 0.35%, which compares favourably with the industry average management fee of 0.98% for actively managed mutual funds and 0.61% for actively managed ETFs. 4 Global diversification. A global portfolio offers potentially lower volatility and increased factor exposure compared with a single-country or regional portfolio. Our ETF provides broad diversification, with exposure to large-, midand small-capitalization stocks from developed markets across the world. Who manages the ETF? Vanguard Global Liquidity Factor ETF is managed by Vanguard Quantitative Equity Group (QEG), which operates from Vanguard s global headquarters in Valley Forge, Pennsylvania. QEG manages about $47 billion across a wide range of active equity investments. Its investment approach is defined by rigorous research, vigilant risk management, discipline and low costs. How we target the liquidity factor The investment universe is the FTSE Developed All Cap Index and the Russell 3000 Index. We divide the universe into regions the United Kingdom, Europe ex-u.k., Japan, Asia Pacific ex-japan, Canada and the United States. Our quantitative models assess each stock daily and assign it a score based on its liquidity factor strength. Stocks are then ranked within each region based on their scores. High-scoring stocks are included in the portfolio and ed according to their score, subject to a set of risk controls that aim to create a globally diversified portfolio. Risk management is an integrated part of our process Vanguard Risk Management Group (RMG) supports the investment process by providing high-quality analysis, insight and reporting, leading to informed risk taking and objective global risk management. RMG reports directly to Vanguard s chief investment officer, which provides an additional, independent layer of risk control to the investment process. Scoring liquidity factor strength Liquidity factors Percent turnover Dollar turnover Amihud illiquidity Rank Score and rank stocks within each developed market region Combine 3 individual scores to form a composite Score Standardize the composites to create scores Liquidity factor score Source: Vanguard. Chart represents Vanguard s proprietary factor portfolio construction process and is for illustration purposes only. 4 The figures provided are an asset-ed average, as of December 31, The average management fee for industry mutual funds was provided by Strategic Insight and includes Series F mutual funds only and excludes ETFs, funds with performance fees, money market funds, funds with management fees charged at account level, hedge funds, index funds and LSVCC funds. The average management fee for industry ETFs was provided by Bloomberg and Vanguard and excludes funds with performance fees, funds with management fees charged at account level and index funds. 2

3 Performance summary* s for period ending December 31, % months Year to date 1 year 3 years 5 years Since inception** Market price 4.72% 13.26% 13.26% 18.12% NAV 4.28% 12.89% 12.89% 17.75% *Please see Important information for significant disclosures regarding the performance of the ETF. **Returns from June 14, 2016, the fund s inception date. Fund statistics Sector ing 5 Number of stocks 1,378 Financials 30.8% Median market cap $7.0B Industrials 19.6 Price/earnings ratio 18.5x Price/book ratio 1.9x Return on equity 10.2% Earnings growth rate 7.6% Cash investments 0.6% Equity yield (dividend) 1.9% Turnover rate (annualized) 45% Consumer Services 11.2 Health Care 8.9 Consumer Goods 8.9 Basic Materials 5.8 Utilities 5.2 Technology 5.0 Oil & Gas 2.9 Telecommunications % Top 10 holdings 6 Top country diversification Sprint Corp. 0.5% Monster Beverage Corp. 0.4 Southern Copper Corp. 0.4 Ecolab Inc. 0.4 Marsh & McLennan Cos. Inc. 0.4 Fiserv Inc. 0.4 S&P Global Inc. 0.4 Waste Management Inc. 0.4 Prologis Inc. 0.4 Aon plc % United States 55.8% Japan 9.8 United Kingdom 7.0 France 4.9 Canada 3.4 Germany 3.2 Hong Kong 2.9 Korea 1.7 Switzerland 1.4 Denmark 0.9 Top countries equal 91.0% of net assets. 5 Please see Important information for sector ings. 6 Please see Important information for the number of holdings. 3

4 Quarterly ETF commentary Global equity markets continued to rise in the fourth quarter of 2017 amid strong economic growth indicators. The FTSE Developed All Cap Index CAD a globally diversified broad-market index ed 5.87%, its seventh consecutive positive quarterly result. All sectors posted positive s, with information technology (+8.6%), consumer discretionary (+8.0%) and materials (+7.9%) leading the way. For the quarter, Vanguard Global Liquidity Factor ETF (+4.28%) trailed the broad-market index. The fund, which was launched in June 2016, invests primarily in U.S. and non-u.s. developed market stocks that have lower liquidity characteristics than their broad-market index counterparts. The investment advisor s quantitative model uses a rules-based active approach that aims to favour stocks with low trading volumes and other measures of trading liquidity, including lower trading share and dollar volumes, based on percentage turnover and price impact. These measures have been shown to be a component of long-term stock market s. For the quarter, the fund s focus on these characteristics detracted from relative s, as its holdings of lower-liquidity stocks underperformed the broader equity market. An under allocation to information technology semiconductors in particular and poor selection in that sector detracted most from s. Selection in financials and industrials further pulled down s. Stock selection in health care, along with under allocations within this sector to pharmaceuticals and biotechnology, helped results. For the 12 months ended December 31, 2017, the fund (+12.89%) trailed the broad-market index (+14.87%). The boost from stock selection in health care and an under allocation to energy did not make up for poor stock selection in financials and information technology. The fund s results were also held back by an under allocation to information technology, which was one of the best-performing sectors for the year. All s are based in CAD. Top contributors 3 months Southern Copper Corporation 20.24% 0.39% 0.07% Kingston Financial Group Limited Monster Beverage Corporation 88.63% 0.11% 0.07% 14.76% 0.40% 0.06% Top detractors 3 months PG&E Corporation 34.04% 0.27% 0.09% Sprint Corp % 0.35% 0.08% Edison International 17.82% 0.30% 0.06% Top contributors 12 months S&P Global, Inc % 0.37% 0.16% Monster Beverage Corporation 33.36% 0.35% 0.11% Ipsen SA 55.26% 0.15% 0.10% Top detractors 12 months Provident Financial PLC 66.80% 0.12% 0.14% Sprint Corp % 0.30% 0.13% Kellogg Company 20.00% 0.22% 0.07% 4

5 Performance attribution by sector Three months Vanguard Global Liquidity Factor ETF Globally diversified broad-market index 7 Attribution 8 to to Basic Materials 5.74% 7.87% 0.42% 4.93% 8.01% 0.38% 0.00% Consumer Goods 8.97% 6.63% 0.56% 12.80% 5.98% 0.76% 0.05% Consumer Services 10.93% 6.34% 0.66% 10.50% 8.66% 0.87% 0.25% Financials 30.99% 4.46% 1.32% 22.20% 5.72% 1.25% 0.42% Health Care 9.14% 3.26% 0.29% 10.83% 2.08% 0.24% 0.17% Industrials 19.03% 4.47% 0.81% 14.46% 5.82% 0.83% 0.27% Oil & Gas 2.60% 7.65% 0.18% 5.67% 6.80% 0.35% 0.00% Technology 5.29% 4.31% 0.23% 12.96% 8.71% 1.10% 0.46% Telecommunications 1.67% 5.14% 0.08% 2.49% 1.80% 0.04% 0.09% Utilities 5.64% 2.31% 0.10% 3.16% 0.80% 0.04% 0.32% % 4.28% 4.28% % 5.87% 5.87% 1.58% Source: Vanguard calculations using data from FactSet. The average sector allocations exclude temporary cash investments. Columns may not total 100% because of rounding. Twelve months Vanguard Global Liquidity Factor ETF Globally diversified broad-market index 7 Attribution 8 to to Basic Materials 5.62% 16.44% 0.86% 4.85% 21.99% 1.01% 0.29% Consumer Goods 8.83% 12.63% 1.03% 12.96% 16.54% 2.04% 0.49% Consumer Services 11.02% 11.23% 1.19% 10.78% 12.93% 1.33% 0.23% Financials 30.87% 9.82% 2.80% 22.15% 14.19% 3.03% 1.75% Health Care 9.57% 23.93% 2.06% 10.96% 14.76% 1.59% 0.98% Industrials 19.16% 19.54% 3.39% 14.23% 19.83% 2.67% 0.21% Oil & Gas 2.33% 5.04% 0.16% 5.87% 2.09% 0.23% 1.22% Technology 5.49% 20.96% 1.10% 12.33% 28.47% 3.19% 1.41% Telecommunications 1.98% 0.62% 0.06% 2.68% 0.50% 0.03% 0.27% Utilities 5.13% 3.94% 0.23% 3.20% 8.36% 0.28% 0.49% % 12.89% 12.89% % 14.87% 14.87% 1.99% Source: Vanguard calculations using data from FactSet. The average sector allocations exclude temporary cash investments. Columns may not total 100% because of rounding. 7 The FTSE Developed All Cap Index was used for reference. 8 Represents the total effect of the portfolio manager s sector allocation and stock selection decisions. Comparisons are shown for reference only. The ETF is actively managed and does not seek to track the performance of a benchmark. 5

6 Connect with Vanguard > vanguardcanada.ca Important information Commissions, management fees, and expenses all may be associated with investments in a Vanguard ETF. Investment objectives, risks, fees, expenses, and other important information are contained in the prospectus; please read it before investing. Vanguard ETFs are managed by Vanguard Investments Canada Inc., an indirect wholly owned subsidiary of The Vanguard Group, Inc., and are available across Canada through registered dealers. Date of publication: March 2018 Performance of the Vanguard ETF: Performance information of the Vanguard ETF reflects waivers of certain expenses and/or fees. If the Vanguard ETF had incurred all expenses, investment s would have been reduced. The indicated rates of are the historical annual compounded total s including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced s. The performance of the Vanguard ETF is for illustrative purposes only. Use of the benchmark: The FTSE Developed All Cap Index was chosen as the ETF s benchmark because it is a broad-based global developed equity market index. Although the ETF uses this index for long-term performance comparisons, it is not managed relative to the composition of the index. There are differences between the ETF and the index in, among other things, security holdings and geographical and sector allocations. As a result, the ETF may experience periods when its performance differs materially from that of the index. Number of holdings: The number of holdings shown is unaudited and should not be relied upon as investment advice. For any Vanguard Canada ETF that invests in one or more underlying ETFs, the number of holdings displayed represents those of the underlying ETF(s). Sector allocations: The sector allocations provided exclude any temporary cash investments. Sector categories are based on the Industry Classification Benchmark system (ICB), except for the Other category (if applicable), which includes securities that have not been provided an ICB classification as of the effective reporting period. This material is for informational purposes only. This material is not intended to be relied upon as research, investment, or tax advice and is not an implied or express recommendation, offer or solicitation to buy or sell any security or to adopt any particular investment or portfolio strategy. Any views and opinions expressed do not take into account the particular investment objectives, needs, restrictions and circumstances of a specific investor and thus, should not be used as the basis of any specific investment recommendation. Please consult your financial and/or tax advisor for financial and/or tax information applicable to your specific situation. Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice. While this information has been compiled from proprietary and non-proprietary sources believed to be reliable, no representation or warranty, express or implied, is made by The Vanguard Group, Inc., its subsidiaries or affiliates, or any other person (collectively, The Vanguard Group ) as to its accuracy, completeness, timeliness or reliability. The Vanguard Group takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this material. This material does not constitute an offer or solicitation and may not be treated as an offer or solicitation in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. In this material, references to Vanguard are provided for convenience only and may refer to, where applicable, only The Vanguard Group, Inc., and/or may include its affiliates, including Vanguard Investments Canada Inc. All investments are subject to risk, including the possible loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market. Foreign investing involves additional risks, including currency fluctuations and political uncertainty Vanguard Investments Canada All rights reserved. INACL_CA