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

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If investors are looking at the Small Cap Blend fund category, Vanguard Strategic Small Cap Equity (VSTCX) could be a potential option. VSTCX possesses a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Load Error

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 based in Malvern, PA, and is the manager of VSTCX. 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 is currently managed by Binbin Guo who has been in charge of the fund since January of 2016.

Performance

Investors naturally seek funds with strong performance. This fund has delivered a 5-year annualized total return of 13.02%, and is in the middle third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 8.88%, 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. Compared to the category average of 25.79%, the standard deviation of VSTCX over the past three years is 27.09%. The standard deviation of the fund over the past 5 years is 22.22% compared to the category average of 21.09%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

The fund has a 5-year beta of 1.32, so investors should note that 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. With a negative alpha of -8.05, managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Holdings

Examining 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.

The mutual fund currently has 89.19% of its holdings in stocks, which have an average market capitalization of $4.25 billion. The fund has the heaviest exposure to the following market sectors:

  1. Finance
  2. Technology
  3. Industrial Cyclical
  4. Retail Trade

With turnover at about 68%, this fund is making fewer trades than comparable funds.

Expenses

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, VSTCX is a no load fund. It has an expense ratio of 0.26% compared to the category average of 1.10%. VSTCX is actually cheaper than its peers when you consider factors like cost.

This fund requires a minimum initial investment of $3,000, and each subsequent investment should be at least $1.

Bottom Line

Overall, Vanguard Strategic Small Cap Equity ( VSTCX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar 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. 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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