Vanguard's SmallCap Fund

Vanguard, the biggest U.S. fund firm said it filed a registration statement with the Securities and Exchange Commission for an actively managed mutual fund investing in small U.S. companies. It is to be called 'Vanguard Strategic Small-Cap Equity Fund'. The mutual fund is expected to be introduced in the market in the second quarter pending regulatory approval. Computer-driven models will be used to make quantitative decisions in order to sift companies with attractive growth prospects but having good valuations.

It may be noted that small-cap stocks have consistently outperformed large-cap and mid-cap rivals with double-digit returns since the 2000 U.S. market downturn. Vanguard already offers Vanguard Explorer Fund (VEXPX) which has a market capital of $11 billion but some investors may shift their preference to the new fund now because of the large asset base of VEXPX, a fact many people point out as a cause of concern regarding the mobility of a mutual fund.

Initial investment minimum for the new fund will be $3,000. The expense ratio would be only 0.40%. Note that because of the difficulties in tracking small cap companies, usually the expense ratio for such funds is quite high. The average small-cap blend fund levies an expense ratio of roughly 1.5%, according to Morningstar Inc. But Vanguard is dedicated to follow its founder, John C. Bogle, a true gentleman who always preaches the effectiveness of keeping the expense ratio at a low level.