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Is BlackRock Exchange BlackRock (STSEX) a Strong Mutual Fund Pick Right Now?

Zacks Equity Research

If you have been looking for Large Cap Growth funds, a place to start could be BlackRock Exchange BlackRock (STSEX). STSEX holds a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify STSEX in the Large Cap Growth category, an area rife with potential choices. Large Cap Growth funds invest in many large U.S. companies that are expected to grow much faster compared to other large-cap stocks. To be considered large-cap, companies must have a market cap over $10 billion.

History of Fund/Manager

BlackRock is based in New York, NY, and is the manager of STSEX. BlackRock Exchange BlackRock made its debut in May of 1986, and since then, STSEX has accumulated about $185.71 million in assets, per the most up-to-date date available. The fund is currently managed by Lawrence Kemp who has been in charge of the fund since January of 2013.

Performance

Investors naturally seek funds with strong performance. This fund in particular has delivered a 5-year annualized total return of 9.77%, and is in the bottom third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 12.89%, which places it in the bottom 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. STSEX's standard deviation over the past three years is 11.66% compared to the category average of 13.89%. Looking at the past 5 years, the fund's standard deviation is 11.3% compared to the category average of 13.46%. 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 STSEX's case, the fund lost 45.55% in the most recent bear market and outperformed its peer group by 3%. This makes the fund a possibly better choice than its peers during a sliding market environment.

Nevertheless, with a 5-year beta of 0.89, the fund is likely to be less 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. With a negative alpha of -0.66, 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 principally on equities that are traded in the United States.

The mutual fund currently has 76.56% of its holdings in stocks, with an average market capitalization of $457.30 billion. The fund has the heaviest exposure to the following market sectors:

  1. Finance
  2. Technology
  3. Health

Turnover is about 0%, so those in charge of the fund make fewer trades than the average comparable fund.

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, STSEX is a no load fund. It has an expense ratio of 0.62% compared to the category average of 1.08%. From a cost perspective, STSEX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $0; each subsequent investment has no minimum amount.

Bottom Line

Overall, BlackRock Exchange BlackRock ( STSEX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively weak performance, average downside risk, and lower fees, BlackRock Exchange BlackRock ( STSEX ) looks like a great potential choice for investors right now.

For additional information on the Large 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 STSEX too 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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