VMVAX: A Low-Cost Way to Invest in Mid-Cap Value Stocks

Mid-cap value stocks are companies that have a market capitalization between $2 billion and $10 billion and are undervalued by the market. These stocks offer the potential for higher returns than large-cap stocks, but also carry more risk than small-cap stocks. Investing in mid-cap value stocks can be a good way to diversify your portfolio and capture the growth opportunities of the mid-sized segment of the U.S. economy.

However, picking individual mid-cap value stocks can be challenging, as they often have less analyst coverage and more volatility than larger companies. That’s why a passive index fund like Vanguard Mid-Cap Value Index Fund (VMVAX) can be a smart choice for investors who want to gain exposure to this asset class without spending too much time or money on research and trading.

What is VMVAX?

VMVAX is a mutual fund that tracks the performance of the CRSP US Mid Cap Value Index, which consists of 194 mid-cap value stocks as of June 30, 2023. The fund is managed by Vanguard, one of the largest and most reputable fund providers in the world. The fund has an inception date of November 13, 2001 and has $16.3 billion in assets under management as of August 4, 2023.

What are the benefits of VMVAX?

One of the main benefits of VMVAX is its low cost. The fund has an expense ratio of only 0.07%, which means that for every $10,000 you invest, you pay only $7 in annual fees. This is much lower than the average expense ratio of 0.95% for mid-cap value funds. By keeping costs low, VMVAX allows investors to keep more of their returns and compound their wealth over time.

Another benefit of VMVAX is its broad diversification. The fund holds stocks from various sectors, such as financial services, industrials, basic materials, utilities, consumer cyclical, healthcare, and others2. The fund also has a low concentration risk, as its top 10 holdings account for only 12.2% of its total assets. By investing in a large number of companies across different industries, VMVAX reduces the impact of any single stock or sector on its performance and lowers its overall volatility.

A third benefit of VMVAX is its consistent performance. The fund has delivered an average annual return of 11.25% since its inception, outperforming its benchmark index by 0.18% per year. The fund has also outperformed its category average by 1.32% per year over the past decade. The fund’s performance has been especially strong in recent years, as it gained 29.67% in 2021 and 17.88% year-to-date as of August 4, 2023.

What are the risks of VMVAX?

Like any investment, VMVAX comes with some risks that investors should be aware of. One of the main risks is market risk, which is the possibility that the entire stock market will decline due to economic or political factors. Since VMVAX invests in mid-cap value stocks, it may be more sensitive to market fluctuations than funds that invest in larger or more stable companies.

Another risk is style risk, which is the possibility that mid-cap value stocks will underperform other styles of investing, such as large-cap growth or small-cap blend. Mid-cap value stocks tend to perform well when the economy is expanding and interest rates are low, but they may lag behind when the economy is contracting or interest rates are rising.

A third risk is index tracking error, which is the difference between the fund’s performance and that of its benchmark index. Although VMVAX has a low tracking error due to its passive approach and low turnover rate, it may still deviate from its index due to fees, cash holdings, rebalancing frequency, or other factors.

Conclusion

VMVAX is a low-cost and diversified way to invest in mid-cap value stocks, which offer the potential for higher returns than large-cap stocks but also carry more risk than small-cap stocks. The fund has performed well over time, beating its benchmark index and category average by a small margin. However, investors should also be aware of the risks involved in investing in mid-cap value stocks, such as market risk, style risk, and index tracking error.

If you are interested in learning more about VMVAX or other Vanguard funds, you can visit their website here. You can also compare VMVAX with other mid-cap value funds on Morningstar here or U.S. News here. Thank you for reading my article. I hope you found it informative and helpful.

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