Is Vanguard STAR Fund (VGSTX) a Strong Mutual Fund Pick Right Now?

If you have been looking for Allocation Balanced funds, it would not be wise to start your search with Vanguard STAR Fund (VGSTX). VGSTX possesses a Zacks Mutual Fund Rank of 4 (Sell), which is based on various forecasting factors like size, cost, and past performance.

Objective

The world of Zacks' Allocation Balanced funds is an area filled with options, such as VGSTX. These funds like to invest in a variety of asset types, finding a balance between stocks, bonds, cash, and sometimes even precious metals and commodities; they are mostly categorized by their respective asset allocation. For investors, Allocation Balanced funds can provide an entry point into diversified mutual funds, and present core holding options for a portfolio of funds.

History of Fund/Manager

VGSTX is a part of the Vanguard Group family of funds, a company based out of Malvern, PA. Since Vanguard STAR Fund made its debut in March of 1985, VGSTX has garnered more than $23.72 billion in assets. 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. VGSTX has a 5-year annualized total return of 5.37%, 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 11.43%, which places it in the middle third during this time-frame.

It is important to note that the product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund's [%] sale charge. If sales charges were included, total returns would have been lower.

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. Over the past three years, VGSTX's standard deviation comes in at 9.59%, compared to the category average of 8.79%. Over the past 5 years, the standard deviation of the fund is 11.85% compared to the category average of 10.63%. 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 0.72, so it is likely going to be less 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. VGSTX's 5-year performance has produced a negative alpha of -4.76, which means managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

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, VGSTX is a no load fund. It has an expense ratio of 0.29% compared to the category average of 0.72%. Looking at the fund from a cost perspective, VGSTX is actually cheaper than its peers.

While the minimum initial investment for the product is $1,000, investors should also note that each subsequent investment needs to be at least $1.

Fees charged by investment advisors have not been taken into consideration. Returns would be less if those were included.

Bottom Line

Overall, Vanguard STAR Fund ( VGSTX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, Vanguard STAR Fund ( VGSTX ) looks like a somewhat weak choice for investors right now.

Don't stop here for your research on Allocation Balanced funds. We also have plenty more on our site in order to help you find the best possible fund for your portfolio. Make sure to check out www.zacks.com/funds/mutual-funds for more information about the world of funds, and feel free to compare VGSTX to its peers as well for additional information. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.

Beyond Nvidia: AI's Second Wave Is Here

The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research