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Is Schwab Small-Cap Equity (SWSCX) a Strong Mutual Fund Pick Right Now?

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There are plenty of choices in the Small Cap Growth category, but where should you start your research? Well, one fund that might be worth investigating is Schwab Small-Cap Equity (SWSCX - Free Report) . SWSCX possesses a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

SWSCX is one of many different Small Cap Growth funds to choose from. Small Cap Growth mutual funds build portfolios around stocks with markets caps under $2 billion and large growth opportunities. Additionally, these portfolios typically highlight smaller companies in promising markets and industries.

History of Fund/Manager

Schwab Funds is based in San Francisco, CA, and is the manager of SWSCX. Schwab Small-Cap Equity debuted in June of 2003. Since then, SWSCX has accumulated assets of about $626 million, according to the most recently available information. Jonas Svallin is the fund's current manager and has held that role since August of 2012.

Performance

Of course, investors look for strong performance in funds. SWSCX has a 5-year annualized total return of 14.96% and it sits in the top third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 9.41%, which places it in the middle third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. SWSCX's standard deviation over the past three years is 14.33% compared to the category average of 13.97%. Over the past 5 years, the standard deviation of the fund is 14.12% compared to the category average of 13.82%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

It's always important to be aware of the downsides to any future investment, so one should not discount the risks that come with this segment. In SWSCX's case, the fund lost 54.71% in the most recent bear market and underperformed comparable funds by 1.64%. This makes the fund a possibly worse choice than its peers during a sliding market environment.

Investors should note that the fund has a 5-year beta of 1.2, so it is likely going to be more volatile than the market at large. Alpha is an additional metric to take into consideration, since it represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which in this case, is the S&P 500. The fund has produced a negative alpha over the past 5 years of -3.06, which shows that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Expenses

As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital for investors. In terms of fees, SWSCX is a no load fund. It has an expense ratio of 1.09% compared to the category average of 1.34%. SWSCX is actually cheaper than its peers when you consider factors like cost.

Investors need to be aware that with this product, the minimum initial investment is $100; each subsequent investment has no minimum amount.

Bottom Line

Overall, Schwab Small-Cap Equity has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, Schwab Small-Cap Equity looks like a good potential choice for investors right now.

For additional information on the Small Cap Growth area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into SWSCX too for additional information. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.


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