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Is Vanguard Tax-Managed Cap Appreciation Institutional (VTCIX) a Strong Mutual Fund Pick Right Now?

Zacks Equity Research

Large Cap Growth fund seekers should consider taking a look at Vanguard Tax-Managed Cap Appreciation Institutional (VTCIX). VTCIX carries 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 VTCIX 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

Vanguard Group is based in Malvern, PA, and is the manager of VTCIX. Vanguard Tax-Managed Cap Appreciation Institutional debuted in February of 1999. Since then, VTCIX has accumulated assets of about $1.16 billion, according to the most recently available information. William A. Coleman is the fund's current manager and has held that role since April of 2016.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund has delivered a 5-year annualized total return of 10.78%, and it sits 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 15.04%, 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 11.77%, the standard deviation of VTCIX over the past three years is 12.22%. Over the past 5 years, the standard deviation of the fund is 12.06% compared to the category average of 11.57%. This makes the fund more 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 VTCIX's case, the fund lost 50.7% in the most recent bear market and underperformed comparable funds by 2%. These results could imply that the fund is a worse choice than its peers during a sliding market environment.

Even still, the fund has a 5-year beta of 1.01, so investors should note that it is hypothetically as volatile as 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. VTCIX has generated a negative alpha over the past five years of -0.07, demonstrating that 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 88.88% of its holdings in stocks, and these companies have an average market capitalization of $192.05 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology
  2. Finance

This fund's turnover is about 10%, so the fund managers are making 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, VTCIX is a no load fund. It has an expense ratio of 0.06% compared to the category average of 1.08%. From a cost perspective, VTCIX is actually cheaper than its peers.

While the minimum initial investment for the product is $5 million, investors should also note that each subsequent investment needs to be at least $1.

Bottom Line

Overall, Vanguard Tax-Managed Cap Appreciation Institutional ( VTCIX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, Vanguard Tax-Managed Cap Appreciation Institutional ( VTCIX ) looks like a good 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 VTCIX too 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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