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Is Vanguard 500 Index Administrative (VFIAX) a Strong Mutual Fund Pick Right Now?

Zacks Equity Research
Updated
Is (PSEC) Outperforming Other Finance Stocks This Year?

Any investors who are searching for Index funds should take a look at Vanguard 500 Index Administrative VFIAX. VFIAX has no Zacks Mutual Fund Rank, but we have been able to look into other metrics like performance, volatility, and cost.

Objective

History of Fund/Manager

VFIAX is a part of the Vanguard Group family of funds, a company based out of Malvern, PA. Since Vanguard 500 Index Administrative made its debut in November of 2000, VFIAX has garnered more than $254.67 billion in assets. The fund's current manager, Donald M. Butler, has been in charge of the fund since April of 2016.

Performance

Investors naturally seek funds with strong performance. This fund in particular has delivered a 5-year annualized total return of 13.08%, and is 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 12.48%, which places it in the top third during this time-frame.

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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 8.85%, the standard deviation of VFIAX over the past three years is 10.25%. Looking at the past 5 years, the fund's standard deviation is 9.7% compared to the category average of 8.8%. 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. VFIAX lost 50.91% in the most recent bear market and outperformed its peer group by 4.36%. This means that the fund could possibly be a better choice than its peers during a down market environment.

Investors should not forget about beta, an important way to measure a mutual fund's risk compared to the market as a whole. VFIAX has a 5-year beta of 1, which means it is likely to be as volatile as 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 negative alpha of -0.02. This means 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 principally on equities that are traded in the United States.

The mutual fund currently has 90.81% of its holdings in stocks, which have an average market capitalization of $194.30 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology

  2. Finance

With turnover at about 3%, this fund makes fewer trades than its comparable peers.

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, VFIAX is a no load fund. It has an expense ratio of 0.04% compared to the category average of 0.85%. Looking at the fund from a cost perspective, VFIAX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $10,000; each subsequent investment needs to be at least $1.

Bottom Line

Want even more information about VFIAX? Then go over to Zacks.com and check out our mutual fund comparison tool, and all of the other great features that we have to help you with your mutual fund analysis for additional information. Want to learn even more? We have a full suite of tools on stocks that you can use to find the best choices for your portfolio too, no matter what kind of investor you are.


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Zacks Investment Research