1 Vanguard funds planning to buy Hand Over Fist this year

Since the Federal Reserve began raising interest rates in March 2022, the U.S. stock market has been dominated by large-cap growth stocks. This trend can be explained by two factors.

First, established companies with strong competitive advantages typically do not need to borrow money to fund growth, so they are less sensitive to the Fed’s interest rate policy. Second, the emerging themes of artificial intelligence (AI) and weight-loss drug sales are driving the performance of some of the biggest companies, including: apple, Nvidia, novo nordiskand Eli Lillywhich has pushed the stock to record highs in recent months.

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However, small and mid-cap stocks, while not completely ignored by investors, have not been able to catch up with large-cap stocks in this distorted market. However, this situation could change soon, and perhaps dramatically.

Despite higher-than-expected inflation in January, the Fed is expected to start cutting interest rates by mid-summer. This policy change will benefit small and mid-cap stocks.

Armed with this insight, I plan to purchase this Vanguard exchange traded fund (ETF) Handover Fist this year. Read on to learn more about this great small-cap ETF.

of CRSP US Small Cap Index A benchmark that measures the returns of small-capitalization companies in the U.S. market.of Vanguard Small Cap Index Fund (VB 1.90%) is an ETF that seeks to track the performance of this index by investing in 1,424 stocks representing a broad swath of the small-cap universe.

One of the most attractive aspects of this fund is its very low cost of ownership. With an annual expense ratio of just 0.05%, the Vanguard Small Cap Index Fund boasts significantly lower operating costs than his peer group, which has an average expense ratio of 1.01%.

The fund also employs a passive index-based strategy that minimizes trading and turnover. The fund’s turnover rate in the previous year was 13.9%, which indicates that the fund manager does not buy or sell stocks frequently.

This strategy reduces transaction costs and tax implications for the Fund’s investors. Additionally, research has shown that funds with low turnover tend to outperform funds with high turnover over the long term. Therefore, Vanguard Small Cap Index Fund has an advantage over its peers in this regard.

Another advantage of this fund is that its holdings are not concentrated in a few stocks or sectors. The fund’s largest asset holdings, Builder’s First Sourcemaking up just 0.39% of the fund’s assets, and no other stock accounting for more than 0.37% of the portfolio.

The fund’s sector allocation is also balanced, with no sector accounting for more than 21.7% of the fund’s assets. This Vanguard small-cap fund is not exposed to undue risk or volatility from any single stock or sector. You can also benefit from diversification by investing in a large number of small-cap stocks.

The Vanguard Small Cap Index Fund has a long track record of delivering solid returns to its stakeholders. Since its inception in 2004, the fund has returned 446% on a cumulative basis, assuming dividends are reinvested and before taxes.

This works out to be an annualized return of about 9%, which is slightly lower than the long-term annualized return of 9.7%. S&P500. However, this comparison may not be entirely fair, as the S&P 500 has benefited greatly from the impressive performance of the so-called “Magnificent Seven” over the past few years. The graph below illustrates this point.

VB Total Return Level Data by YCharts.

However, when we compare this fund to its benchmark, the CRSP US Small Cap Index, we find that the fund has been fairly consistent in its performance over the long term, with only minor deviations. Therefore, the Vanguard Small Cap Index is a great way to gain exposure to this particular group of stocks.

Important points

If the Fed does decide to focus on interest rates, small-cap stocks could regain market dominance later this year. To take advantage of this potentially powerful catalyst, I plan to add to the Vanguard Small Cap Index Fund and hold it indefinitely.