Markets

Should You Invest in Vanguard Strategic Equity Fund (VSEQX)?

If investors are looking at the Mid Cap Blend fund category, Vanguard Strategic Equity Fund VSEQX could be a potential option. VSEQX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

The world of Mid Cap Blend mutual funds is an area filled with options, such as VSEQX. Mid Cap Blend funds expose investors to value picks, income opportunities, and exciting growth potential, but also gives some stability; these funds usually seek a stock portfolio of various size and style, which allows for diversification when the focus is on companies with market capitalization in the range of $2 billion to $10 billion.

History of Fund/Manager

Vanguard Group is responsible for VSEQX, and the company is based out of Malvern, PA. Vanguard Strategic Equity Fund debuted in August of 1995. Since then, VSEQX has accumulated assets of about $7.18 billion, according to the most recently available information. The fund is currently managed by a team of investment professionals.

Performance

Of course, investors look for strong performance in funds. This fund in particular has delivered a 5-year annualized total return of 17.11%, and it sits in the top third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 10.54%, 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. Over the past three years, VSEQX's standard deviation comes in at 12.23%, compared to the category average of 11.69%. The fund's standard deviation over the past 5 years is 11.87% compared to the category average of 11.47%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

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 VSEQX's case, the fund lost 56.19% in the most recent bear market and underperformed comparable funds by 5.07%. This means that the fund could possibly be a worse choice than its peers during a down market environment.

And for investors concerned about the potential drawdown in a really bad calendar year, we can look back to 2008 for that figure. In its worst calendar year in a decade, the fund lost over 41.6%.

Nevertheless, with a 5-year beta of 1.09, the fund is likely to be more 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. Over the past 5 years, the fund has a positive alpha of 0.61. This means that managers in this portfolio are skilled in picking 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 mostly on equities that are traded in the United States.

The mutual fund currently has 98.80% of its holdings in stocks, which have an average market capitalization of $7.25 billion. The fund has the heaviest exposure to the following market sectors:

  1. Finance
  2. Technology

With turnover at about 128%, this fund is making 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, VSEQX is a no load fund. It has an expense ratio of 0.18% compared to the category average of 1.17%. So, VSEQX is actually cheaper than its peers from a cost perspective.

While the minimum initial investment for the product is $3,000, investors should also note that each subsequent investment needs to be at least $1.

Bottom Line

Overall, Vanguard Strategic Equity Fund VSEQX has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

Your research on the Mid Cap Blend segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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