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By Ann C. Logue, MutualsAdvisor.com |
VEXPX | Aug 25, 2008 |
Fund Profile: Vanguard Explorer
By Ann C. Logue
Vanguard Explorer has long been a popular small-cap stock fund. So popular, in fact, that it is periodically closed to new investors. Given the current dismal drop in the stock market and accompanying cash outflows, the fund's management has decided that it can take on more investors. Is this a buying opportunity?
Yes, if you have the nerve to buy into this market. Over the last 40 years, the Vanguard Explorer fund has had outstanding performance. For the year to date, the fund is down 10%, but the S&P 500 is down 12.7% and the average small growth fund is down 11.5%. For the last five years, Explorer had an average annual return of 8.37%, besting the 6.94% earned by the S&P and the 7.62% of average small growth fund.
The performance is helped by the fund's low fees. Like all Vanguard funds, this is a low-cost, no-load proposition. The fund has a $3,000 minimum investment with no sales charge or 12b-1 fee. There are a few fees, though: accounts with a balance below $10,000 are charged a $20 per year account maintenance fee, waived for investors who sign up to receive account statements online or who have more than $100,000 in total assets invested at Vanguard. And although the Vanguard Explorer Fund has a low expense ratio, 0.47%, those who invest $100,000 into the fund or who have had an account with Vanguard for at least 10 years may qualify for Admiral class shares, which carry an expense ratio of just 0.23%.
Vanguard keeps its expenses low by hiring different money management firms to handle its mutual fund portfolios. That way, they have to compete on their performance and fees to keep the business. Right now, Explorer's$10.1 billion in assets are divided among six different investment companies. Among them, they own a total of 1137 different stocks. No one holding makes up even a full percentage of fund assets, which reduces the fund's exposure to any particular name. The largest holding, at 0.9%, is Microsemi (Nasdaq: MSCC), a maker of integrated circuits and semiconductors. The next largest holding is Cephalon (Nasdaq: CEPH), a biotechnology company, also at 0.7%. In third place at 0.7% of assets is Dun & Bradstreet (NYSE: DNB), which publishes financial information used to evaluate the creditworthiness of businesses.
Vanguard's investor-friendly approach to the mutual fund business makes it popular with people who make their own decisions. The low fee structure gives the fund a little more leeway on performance than its competitors, which shows up in the results. Because the firm is quick to close this fund when it gets popular, the current window presents a double buying opportunity: a chance to get into a consistent growth fund on the cheap.
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