Is Vanguard Tax-Managed Small Cap Investor a Strong Mutual Fund Pick Right Now?

Any investors hoping to find a Small Cap Blend fund could think about starting with Vanguard Tax-Managed Small Cap Investor VTMSX. VTMSX holds a Zacks Mutual Fund Rank of 2 (Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

Zacks categorizes VTMSX as Small Cap Blend, which is an area packed with options. Usually targeting stocks with market caps of less than $2 billion, a Small Cap Blend mutual fund lets investors diversify their funds among other kinds of small-cap equities. This can help reduce risk found in companies that have a lower stock market valuation.

History of Fund/Manager

VTMSX is a part of the Vanguard Group family of funds, a company based out of Malvern, PA. Vanguard Tax-Managed Small Cap Investor made its debut in April of 1999, and since then, VTMSX has accumulated about $8.10 billion in assets, per the most up-to-date date available. Walter Nejman is the fund's current manager and has held that role since February of 2023.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund in particular has delivered a 5-year annualized total return of 10.14%, and is in the middle 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 0.61%, which places it in the middle third during this time-frame.

It is important to note that the product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund's [%] sale charge. If sales charges were included, total returns would have been lower.

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. The standard deviation of VTMSX over the past three years is 21.13% compared to the category average of 17.21%. The fund's standard deviation over the past 5 years is 23.45% compared to the category average of 19.34%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors should not forget about beta, an important way to measure a mutual fund's risk compared to the market as a whole. VTMSX has a 5-year beta of 1.12, which means it is likely to be more volatile than the market average. 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. VTMSX has generated a negative alpha over the past five years of -5.53, 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 primarily on equities that are traded in the United States.

Right now, 94.78% of this mutual fund's holdings are stocks, and these companies have an average market capitalization of $2.91 billion. The fund has the heaviest exposure to the following market sectors:

• Finance
• Industrial Cyclical
• Technology

Turnover is 20%, which means, on average, the fund makes fewer trades than the average comparable fund.

Expenses

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, VTMSX is a no load fund. It has an expense ratio of 0.09% compared to the category average of 0.98%. So, VTMSX is actually cheaper than its peers from a cost perspective.

This fund requires a minimum initial investment of $10,000, and each subsequent investment should be at least $1.

Fees charged by investment advisors have not been taken into considiration. Returns would be less if those were included.

Bottom Line

Overall, Vanguard Tax-Managed Small Cap Investor has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, Vanguard Tax-Managed Small Cap Investor looks like a great potential choice for investors right now.

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