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Is Schwab Small-Cap Equity (SWSCX) a Strong Mutual Fund Pick Right Now?

Having trouble finding a Small Cap Growth fund? Well, Schwab Small-Cap Equity (SWSCX) would not be a good potential starting point right now. SWSCX bears a Zacks Mutual Fund Rank of 5 (Strong Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

SWSCX is one of many different Small Cap Growth funds to choose from. Small Cap Growth mutual funds build portfolios around stocks with markets caps under $2 billion and large growth opportunities. Additionally, these portfolios typically highlight smaller companies in promising markets and industries.

History of Fund/Manager

Schwab Funds is responsible for SWSCX, and the company is based out of San Francisco, CA. Schwab Small-Cap Equity debuted in June of 2003. Since then, SWSCX has accumulated assets of about $491 million, according to the most recently available information. The fund is currently managed by Jonas Svallin who has been in charge of the fund since August of 2012.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund carries a 5-year annualized total return of 13%, and is in the middle third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 8.34%, which places it in the bottom 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. Compared to the category average of 25.73%, the standard deviation of SWSCX over the past three years is 26.22%. Over the past 5 years, the standard deviation of the fund is 21.89% compared to the category average of 21.17%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

The fund has a 5-year beta of 1.29, so investors should note that it is hypothetically 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 -6.44, managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Holdings

Investigating 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.

The mutual fund currently has 78.3% of its holdings in stocks, and these companies have an average market capitalization of $2.59 billion. The fund has the heaviest exposure to the following market sectors:

  1. Finance
  2. Technology
  3. Health
  4. Industrial Cyclical
  5. Other
Turnover is 113%, which means, on average, the fund makes more trades in a given year than the category average.

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, SWSCX is a no load fund. It has an expense ratio of 1.09% compared to the category average of 1.21%. Looking at the fund from a cost perspective, SWSCX is actually cheaper than its peers.

While the minimum initial investment for the product is $0, investors should also note that there is no minimum for each subsequent investment.

Bottom Line

Overall, Schwab Small-Cap Equity ( SWSCX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, this fund looks like a somewhat weak choice for investors right now.

For additional information on the Small Cap Growth area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into SWSCX too for additional information. And don't forget, Zacks has all of your needs covered on the equity side too! Make sure to check out Zacks.com for more information on our screening capabilities, Rank, and all our articles as well.


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