“U.S. small caps still get 84% of sales from home.” -Blackrock, 2015
Performance and reduced sensitivity to the global economy are two attractive attributes of small-capitalization equities. According to a recent white paper released by Blackrock, the average large-cap now gets 38% of its earnings from overseas vs. 16% for smaller companies. This has made many blue chip stocks vulnerable to currency fluctuations, and political and macro-economic events. In light of the recent events in Europe, China and the Emerging Markets, we’ve decided to focus on the small-cap universe and have chosen the Vanguard Small Cap Index Fund as our fund of the week.
With $56.5 billion in net assets and 1,490 holdings, the portfolio offers a small-cap blend, with a low fee structure and a 10% turnover rate. Foreign holdings account for 0.1% and the aggressive nature allows the manager to increase sector concentration.
Type of Fund
This fund is an open-ended retail mutual fund, with a $3,000 minimum investment requirement for both standard and IRA accounts.
Manager Profile
Michael H. Buek is a CFA and Portfolio Manager for the Vanguard Small Cap Index Fund. Holding a B.S. from the University of Vermont and an MBA from Villanova University, he has been employed with Vanguard since 1987 and has advised the fund since 1991.
Performance
| Return Ranking - Calendar | |||||
|---|---|---|---|---|---|
| Period | NAESX Return | Category Return Low | Category Return High | Rank in Category (%) | Quintile |
| 2014 | 6% | 0.8% | 6% | 50% | 1 |
| 2013 | 38.2% | 38.2% | 43.4% | 100% | 3 |
| 2012 | 18.8% | 18.8% | 29.6% | 100% | 3 |
| 2011 | -2.9% | -2.9% | 0.5% | 100% | 3 |
| 2010 | 29.9% | 29.9% | 45.9% | 100% | 3 |
NAESX’s year-to-date return is 3.3% (as of 08/04/15), which puts the fund in the 1st quintile for the category. The fund topped its category in 2014, with a conservative 6%, after falling into the 3rd quintile from 2010 to 2013. Its three-year performance is 18.20%, which is slightly below the small-cap benchmark of 18.91%.
Distributions
The fund offers semi-annual distributions in March and December, with the recent payment being $0.024. Record date was 03/23/2015 and the reinvestment price was $58.80. The current price for the fund is $57.70 (as of 8/3/2015).
Sector Weightings
A key component of the fund is its diversification across a number of growth, cyclical and defensive sectors. Relatively balanced across each, industrials account for 16.11% of the portfolio, which puts it in the 3rd quintile.
Top 10 Holdings
The top holdings account for only 2.6% of the total portfolio value, with the biggest holdings being WhiteWave Foods Co., Rite Aid Corp. and Goodyear Tire & Rubber Co.
Concerns
As this is a small-cap focused fund, the volatility can be considerably higher than a traditional large-cap portfolio, with drawdowns expected. The weightings in both the materials and energy sectors are also cause for concern as their performance could be subject to commodity price fluctuations.
The Bottom Line
The Vanguard Small Cap Index Fund (NAESX) offers investors diversified small-cap exposure with a low turnover rate and fee structure. An aggressive blend, it is regarded as a long-term buy and hold portfolio kicker.