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Is Vanguard Extended Market Index Inv (VEXMX) a Strong Mutual Fund Pick Right Now?

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Having trouble finding a Small Cap Blend fund? Vanguard Extended Market Index Investor (VEXMX - Free Report) is a potential starting point. VEXMX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

Zacks categorizes VEXMX as Small Cap Blend, which is an area packed with options. Usually targeting stocks with market caps of less than $2 billion, a Small Cap Blend mutual fund lets investors diversify their funds among other kinds of small-cap equities. This can help reduce risk found in companies that have a lower stock market valuation.

History of Fund/Manager

Vanguard Group is based in Malvern, PA, and is the manager of VEXMX. Since Vanguard Extended Market Index Investor made its debut in December of 1987, VEXMX has garnered more than $1.52 billion in assets. The fund's current manager, Donald M. Butler, has been in charge of the fund since December of 1997.

Performance

Of course, investors look for strong performance in funds. This fund in particular has delivered a 5-year annualized total return of 14.67%, and it sits in the middle 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 9.34%, 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. The standard deviation of VEXMX over the past three years is 12.21% compared to the category average of 9.71%. The standard deviation of the fund over the past 5 years is 12.13% compared to the category average of 13.31%. This makes the fund less 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 VEXMX's case, the fund lost 52.83% in the most recent bear market and underperformed comparable funds by 0.39%. This might suggest that the fund is a worse choice than its peers during a bear market.

Nevertheless, investors should also note that the fund has a 5-year beta of 1.11, which means it is hypothetically more volatile than the market at large. Because alpha represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which is the S&P 500 in this case, one should pay attention to this metric as well. Over the past 5 years, the fund has a negative alpha of -1.76. This means that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Holdings

Exploring the equity holdings of a mutual fund is also a valuable exercise. This can show us how the manager is applying their stated methodology, as well as if there are any inherent biases in their approach. For this particular fund, the focus is largely on equities that are traded in the United States.

As of the last filing date, the mutual fund has 98.93% of its assets in stocks, with an average market capitalization of $6.46 billion. The fund has the heaviest exposure to the following market sectors:

  1. Finance
  2. Technology
  3. Industrial Cyclical
  4. Other

With turnover at about 22%, this fund makes fewer trades than comparable funds.

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, VEXMX is a no load fund. It has an expense ratio of 0.21% compared to the category average of 1.15%. From a cost perspective, VEXMX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $3,000; each subsequent investment needs to be at least $1.

Bottom Line

Overall, Vanguard Extended Market Index Investor VEXMX has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, Vanguard Extended Market Index Investor VEXMX looks like a good potential choice for investors right now.

Don't stop here for your research on Small Cap Blend funds. We also have plenty more on our site in order to help you find the best possible fund for your portfolio. Make sure to check out www.zacks.com/funds/mutual-funds for more information about the world of funds, and feel free to compare VEXMX to its peers as well for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.




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