Is USAA Small Cap Stock Fund (USCAX) a Strong Mutual Fund Pick Right Now?

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Small Cap Blend fund seekers should not consider taking a look at USAA Small Cap Stock Fund (USCAX) at this time. USCAX bears a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

Zacks categorizes USCAX as Small Cap Blend, which is an area packed with options. Usually targeting stocks with market caps of less than $2 billion, a Small Cap Blend mutual fund lets investors diversify their funds among other kinds of small-cap equities. This can help reduce risk found in companies that have a lower stock market valuation.

History of Fund/Manager

Victory is based in Columbus, OH, and is the manager of USCAX. USAA Small Cap Stock Fund debuted in August of 1999. Since then, USCAX has accumulated assets of about $843.98 million, according to the most recently available information. A team of investment professionals is the fund’s current manager.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund in particular has delivered a 5-year annualized total return of 16.8%, and it sits 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 15.72%, which places it in the top third during this time-frame.

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. The standard deviation of USCAX over the past three years is 26.27% compared to the category average of 20.37%. Over the past 5 years, the standard deviation of the fund is 21.6% compared to the category average of 16.8%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors should note that the fund has a 5-year beta of 1.26, so it is likely going to be more volatile than the market at large. Because alpha represents a portfolio’s performance on a risk-adjusted basis relative to a benchmark, which is the S&P 500 in this case, one should pay attention to this metric as well. With a negative alpha of -3.72, 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.

As of the last filing date, the mutual fund has 91.74% of its assets in stocks, with an average market capitalization of $3.94 billion. The fund has the heaviest exposure to the following market sectors:

  1. Finance

  2. Technology

  3. Industrial Cyclical

  4. Health

  5. Other

With turnover at about 60%, this fund is making fewer trades than its comparable peers.

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, USCAX is a no load fund. It has an expense ratio of 1.12% compared to the category average of 1.11%. Looking at the fund from a cost perspective, USCAX is actually more expensive than its peers.

This fund requires a minimum initial investment of $3,000, and each subsequent investment should be at least $50.

Bottom Line

Overall, USAA Small Cap Stock Fund ( USCAX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and higher fees, this fund looks like a poor potential choice for investors right now.

Your research on the Small Cap Blend segment doesn’t have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. Zacks provides a full suite of tools to help you analyze your portfolio – both funds and stocks – in the most efficient way possible.

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