There are plenty of choices in the Index category, but where should you start your research? Well, one fund that might be worth investigating is Vanguard Total Stock Market Index Investor (VTSMX). While this fund is not tracked by the Zacks Mutual Fund Rank, we were able to examine other factors like performance, volatility, and cost.
History of Fund/Manager
Vanguard Group is based in Malvern, PA, and is the manager of VTSMX. Since Vanguard Total Stock Market Index Investor made its debut in April of 1992, VTSMX has garnered more than $139.21 billion in assets. Gerard C. O'Reilly is the fund's current manager and has held that role since December of 1994.
Investors naturally seek funds with strong performance. This fund has delivered a 5-year annualized total return of 11.68%, and is 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 13.68%, which places it in the top 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 8.86%, the standard deviation of VTSMX over the past three years is 12.4%. Over the past 5 years, the standard deviation of the fund is 12.11% compared to the category average of 9.34%. This makes the fund more volatile than its peers over the past half-decade.
One cannot ignore the volatility of this segment, however, as it is always important for investors to remember the downside to any potential investment. In VTSMX's case, the fund lost 50.89% in the most recent bear market and underperformed its peer group by 8%. These results could imply that the fund is a worse choice than its peers during a sliding market environment.
Investors should note that the fund has a 5-year beta of 1.02, so it is likely going to be as volatile as 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. VTSMX has generated a negative alpha over the past five years of -0.78, demonstrating that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.
Investigating 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.
Right now, 80.09% of this mutual fund's holdings are stocks, with an average market capitalization of $193.22 billion. The fund has the heaviest exposure to the following market sectors:
Turnover is about 8%, so those in charge of the fund make fewer trades than comparable funds.
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, VTSMX is a no load fund. It has an expense ratio of 0.14% compared to the category average of 0.85%. Looking at the fund from a cost perspective, VTSMX is actually cheaper than its peers.
This fund requires a minimum initial investment of $3,000, and each subsequent investment should be at least $1.
For additional information on the Index 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 VTSMX too for additional information. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.
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