Brooke Southall

To me this is a case of not giving the fund enough time to reach its potential, performance-wise.  Here's why:  over the last 3-5 years, investors have focused on the most liquid names in the U.S. investment landscape...names like Apple, Netflix, Microsoft, etc., (essentially the big kahunas in the S&amp;P 500) to the detriment of the rest of the market (and the holdings of this fund in particular).  Comparing the U.S. Liquidity Factor ETF to the performance of the VTI is flawed from that perspective in that their investment universes are almost diametrically opposed!

My guess is that one would need to runway of at least a full market cycle (typically 6-15 years) in order to prove out a thesis of there being "alpha" in illiquid names. But most advisors and investors don't have the stomach for such time tables.

Unfortunate, but that's the way the cookie crumbles.

There were so many good reasons for Vanguard to fold its first ETF but radical underperformance may stand out for the 'illiquidity' fund

Dimensional Fund Advisors

The Vanguard Group

Avantis

Eduardo Repetto

A look at the numbers shows that exchange traded funds are starting to move in lockstep with RIAs and vice-versa. RIAs invested $496 billion in ETFs in the 12-month period ended June 30, 2015 – that’s a $78 billion increase compared to the same period the year before. By comparison, the wirehouse channel added 20% fewer ETF assets, or $397 billion in the last year; granted, an amount that was $70 billion greater than its aggregate investment during the same 12-month period the year before, according to Broadridge Financial Solutions. RIAs that manage portfolios and make discretionary investment choices for their clients value ETFs because they provide advisors with easy access to market segments at a cheap price – an especially important factor for RIAs who are compensated on an asset-fee basis. Fee-based advisors appreciate ETFs’ tax efficiency, liquidity and broad exposure at low cost. Conversely, RIAs are a prized channel for ETF-makers like State Street, Invesco, PowerShares, Vanguard Group and BlackRock. ETFs are also a major ingredient in portfolios devised by robo-advisors -- essentially automated RIAs -- for the mass affluent who invest more than 90% of their assets using ETFs.

ETFs

The Malvern, Pa., manager blamed $44-million fund's scale, but marked underperformance and a manager departure as likely doomed it, one Vanguard watcher says

There were so many good reasons for Vanguard to fold its first ETF but radical underperformance may stand out for the 'illiquidity' fund

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Brian Murphy

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