The Vanguard Explorer Value Fund (VEVFX) just opened to investors with a subscription period beginning in March. With the money held in cash, the fund began investing in equities at month-end. As I told you in December, when Vanguard first filed papers to open the fund, Explorer Value will focus on small- to mid-sized value companies, which Vanguard sees as an open niche in their actively managed fund lineup.
Unlike its namesake fund, Vanguard Explorer Fund (VEXPX), the new fund is employing a multiple-manager approach right off the bat, (despite being multi-managed today, for many years Explorer was run by a single manager) with seven portfolio managers from three management firms each handling a piece of the fund’s assets. These three firms will initially each have even splits of the portfolio. Two of the advisory firms, Cardinal Capital Management and Sterling Capital Management, are new to Vanguard, while the third, Frontier Management, has been managing a portion of Vanguard Morgan Growth Fund (VMRGX) assets since 2008.
Explorer Value is expected to begin life with a 0.59% expense ratio and requires a $10,000 minimum initial investment. If the three management teams can work in concert and put together a compelling portfolio, it could be a good option for the small- to mid-cap portion of a portfolio, especially since it will be just one of three actively managed funds in that niche (the other two being the index-like Explorer and the quantitative Vanguard Strategic Small-Cap Equity Fund (VSTCX). Vanguard says the portfolio should have fewer than 200 stocks in it, but if the numbers are close to that maximum it will mean that, on average, each manager is holding 70-plus stocks, since more than one manager could and probably will own several of the same stocks. This might work, but then again it might simply yield index-like performance, despite being considerably smaller in numbers than an index fund. Vanguard Small-Cap Value Index Fund (VISVX), by the way, invests in just under 1,000 stocks.
Should disclosure of the portfolio’s makeup suggest something other than an index-like positioning of assets, and if relative performance suggests there’s value here, then I’ll rethink my position. At the moment there is nothing compelling enough to make me recommend owning Vanguard Explorer Value Fund (VEVFX) right out of the box.
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