Why I Think Vanguard’s New Wellington Active Equity ETFs Will Be a Flop

In November 2025, Vanguard once again expanded its lineup of actively managed ETFs. Unlike its earlier active launches, which focused primarily on fixed income, this latest trio turned its attention to equities with the introduction of the Vanguard Wellington U.S. Value Active ETF (VUSV), Vanguard Wellington U.S. Growth Active ETF (VUSG), and Vanguard Wellington Dividend Growth Active ETF (VDIG).

The strategy makes sense on paper. Rather than building another suite of quantitative index funds, Vanguard is leveraging the investment expertise of Wellington Management, one of the oldest and most respected asset managers in the United States.

The connection also runs much deeper than many investors realize. John C. Bogle began his career at Wellington before going on to found Vanguard, which initially operated as the firm's administrative and distribution arm before growing into the indexing powerhouse it is today.

Given Vanguard's track record, it's easy to see why investors might be interested. After all, the Vanguard S&P 500 ETF (VOO) recently surpassed $1 trillion in assets under management, underscoring just how dominant the firm's brand has become.

Yet despite that success, I think these three ETFs face a significant hurdle to widespread adoption. The issue isn't Wellington's investment process or Vanguard's reputation. It's what I see as a mismatch between the funds' fees, their mandates, and the investors they're trying to attract.

Vanguard has spent decades building a brand around low-cost, broadly diversified index investing. Investors willing to pay higher fees for active management already have an enormous universe of established competitors to choose from, while Vanguard's traditional clientele tends to be among the most fee-conscious in the industry.

This isn't intended as a criticism of Vanguard as a whole. In fact, despite arriving relatively late to the ETF market, I think the firm has done an excellent job expanding its product lineup, and I've generally been positive on most of its recent launches. These three ETFs are the exception.

That doesn't mean they can't eventually gain traction. But based on where they stand today, I have concerns about both their long-term asset growth and their ability to distinguish themselves in an increasingly crowded active ETF market. Here's why I'm skeptical.

The Fees Are Simply Too High

One of the reasons Vanguard has become the world's second-largest asset manager is its relentless focus on lowering costs. The company routinely issues press releases whenever it reduces expense ratios, and for good reason. Vanguard's unique ownership structure creates a virtuous cycle.

Because the company is owned by the shareholders of its U.S. funds rather than outside investors, economies of scale can be passed back to fund investors through lower fees instead of higher corporate profits. Lower fees attract more assets, larger asset bases further reduce operating costs, rise and repeat.

Its investment philosophy reinforces that advantage. Much of Vanguard's index lineup tracks straightforward benchmarks from providers such as the Center for Research in Security Prices (CRSP), allowing the firm to keep portfolio turnover, licensing costs, and operating expenses exceptionally low.

Few firms have done more to make investing cheaper over the past five decades. That's why the pricing of these new active ETFs feels somewhat out of character. VUSV charges a 0.30% expense ratio. VUSG is slightly higher at 0.35%, while VDIG is the most expensive of the trio at 0.40%.

Viewed in isolation, those fees are perfectly reasonable. In the active management world, they're actually quite competitive. The problem is that these funds aren't competing primarily against other active ETFs. They're competing against Vanguard's own index lineup.

For each of these mandates, investors can already find a broadly comparable low-cost passive alternative from Vanguard at a fraction of the cost. VUSV goes head-to-head with the Vanguard Value ETF (VTV), which charges just 0.03%, or one-tenth of VUSV's 0.30% expense ratio. Likewise, VUSG competes with the Vanguard Growth ETF (VUG), which also costs 0.03%. Finally, VDIG is positioned against the Vanguard Dividend Appreciation ETF (VIG), which charges just 0.04%.

That creates an unusually high hurdle. Investors have to believe the active managers can consistently overcome not only the market, but also the additional fees. So far, the early performance hasn't made that case particularly convincingly.

Early Performance Hasn't Justified the Higher Fees

Since launch, each of these ETFs has trailed the lower-cost passive fund it's most directly competing against. The performance gap is notable.

Since inception, VUSV has returned 16.12% compared with 19.63% for VTV. VUSG has returned 5.70% versus 8.46% for VUG. The same holds for VDIG, which returned 6.10% versus VIG at 12.22%. Whatever Wellington's active process is trying to accomplish, it hasn't translated into better returns so far.

To be fair, these are very young funds, and it would be unreasonable to draw definitive conclusions from less than a year of performance. Active strategies often require a longer evaluation period. That said, first impressions matter when launching a new ETF. Investors are far more willing to overlook higher fees if the early results demonstrate a clear advantage. So far, that hasn't happened.

It's also difficult to argue that these portfolios offer enough differentiation to justify the trade-offs. Take VUSV as an example. The portfolio holds just 85 stocks compared with 308 in VTV, giving investors significantly less diversification. Despite positioning itself as a value strategy, the portfolio is actually more expensive on one commonly used valuation metric. According to Vanguard, VUSV trades at a weighted average price-to-earnings ratio of 24.3 times compared with 21.4 times for VTV.

The story is similar with VUSG. The active fund owns only 41 companies versus 147 in VUG. It also appears to lag on at least one quality metric, with a portfolio return on equity of 30.3% compared with 36.1% for the passive alternative.

VDIG is even more concentrated, holding just 37 companies versus VIG's 332-stock portfolio. Investors are also accepting a lower income stream despite paying substantially higher fees. VDIG currently offers a 1.07% 30-day SEC yield compared with 1.52% for VIG.

Viewed in isolation, these Wellington-managed ETFs are respectable active products. If Vanguard had built its brand around active management from the beginning, they might have been viewed quite differently. The problem is that investors aren't evaluating them in isolation. They're comparing them against VTV, VUG, and VIG, three of the most respected and lowest-cost ETFs in their categories.

Against that backdrop, it's difficult to make the case for paying materially higher fees, accepting less diversification, and, at least so far, receiving lower returns. That's a tough value proposition for Vanguard's core investor base of Bogleheads.

The Strategy Feels Like a Miss

To me, this is an example of an ETF product strategy that misses the forest for the trees. I understand why Vanguard wants to expand its active ETF lineup. Active ETFs have been one of the fastest-growing areas of the industry, and investors clearly have an appetite for them. It would be unrealistic to expect Vanguard to simply ignore that trend.

What I don't understand is how the firm chose to compete. This is a company whose late founder, John C. Bogle, spent his career advocating for low-cost index investing, a philosophy that I broadly agree with. Yet these new products ask investors to pay meaningfully higher fees for more concentrated portfolios that, at least so far, have failed to outperform the very indexes they're trying to beat.

That's a difficult pitch coming from any issuer, but especially from Vanguard. If the goal was to leverage Wellington Management's reputation, I think there was a much more compelling opportunity. Rather than launching separate value, growth, and dividend growth strategies, I would have much preferred to see an ETF version of the legendary Vanguard Wellington Fund (VWELX).

That balanced strategy has almost a century-long track record and a loyal investor base. Bringing it into an ETF wrapper would make it accessible to investors who don't want to deal with mutual fund minimum investment requirements, while also allowing the ETF's in-kind creation and redemption mechanism to significantly reduce, if not largely eliminate, capital gains distributions.

Instead, these three launches feel like a solution in search of a problem. They're more expensive than Vanguard's flagship index funds, less diversified, and, so far, they're also underperforming. Inflows have been stagnant as well, with VUSV, VUSG, and VDIG languishing at $74 million, $29 million, and $27 million in assets under management, respectively.

Again, none of this is meant as a broad criticism of Vanguard as an asset manager. The firm has arguably done more than any other competitor to reduce investing costs and improve outcomes for everyday investors. Its overall contribution to the ETF industry is difficult to overstate.

But no product lineup is perfect. Based on what I've seen so far, I think these three Wellington active equity ETFs missed the mark, and I'd rather see Vanguard return to the drawing board than continue trying to force a lineup that doesn't clearly improve on what it already does exceptionally well.