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Is Vanguard Strategic Small Cap Equity (VSTCX) a Strong Mutual Fund Pick Right Now?

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Small Cap Blend fund seekers should consider taking a look at Vanguard Strategic Small Cap Equity (VSTCX - Free Report) . VSTCX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

VSTCX is one of many Small Cap Blend funds to choose from. Small Cap Blend mutual funds allow investors a way to diversify their funds among various types of small-cap stocks. These funds seek companies with market capitalization of less than $2 billion, and aid in reducing volatility inherent in lower market cap stocks.

History of Fund/Manager

Vanguard Group is responsible for VSTCX, and the company is based out of Malvern, PA. Since Vanguard Strategic Small Cap Equity made its debut in April of 2006, VSTCX has garnered more than $1.66 billion in assets. The fund's current manager, James P. Stetler, has been in charge of the fund since April of 2006.

Performance

Investors naturally seek funds with strong performance. This fund in particular has delivered a 5-year annualized total return of 14.1%, and it sits in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 7.21%, 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. Over the past three years, VSTCX's standard deviation comes in at 13.42%, compared to the category average of 13.67%. The standard deviation of the fund over the past 5 years is 13.56% compared to the category average of 13.82%. This makes the fund less volatile than its peers over the past half-decade.

Risk Factors

Investors cannot discount the risks to this segment though, as it is always important to remember the downside for any potential investment. In VSTCX's case, the fund lost 54.57% in the most recent bear market and underperformed its peer group by 2.15%. These results could imply that the fund is a worse choice than its peers during a sliding market environment.

Nevertheless, with a 5-year beta of 1.08, the fund is likely to be more volatile than the market average. 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. Over the past 5 years, the fund has a negative alpha of -1.18. 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 principally on equities that are traded in the United States.

The mutual fund currently has 78.22% of its holdings in stocks, which have an average market capitalization of $3.26 billion. The fund has the heaviest exposure to the following market sectors:

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

Turnover is 91%, which means this fund makes more trades per year than the comparable average.

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, VSTCX is a no load fund. It has an expense ratio of 0.29% compared to the category average of 1.12%. So, VSTCX is actually cheaper than its peers from a cost perspective.

While the minimum initial investment for the product is $3,000, investors should also note that each subsequent investment needs to be at least $1.

Bottom Line

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

Your research on the Small Cap Blend segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.




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