Small & Mid Cap Funds

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jay22
Posts: 701
Joined: Thu Aug 23, 2012 8:56 am
Location: Sacramento, CA

Small & Mid Cap Funds

Post by jay22 » Mon Aug 08, 2016 8:57 pm

Recently, my 401K plan admin added the following 2 funds:

1. Columbia Small Cap Index Fund Class R5 Shares (CXXRX) ER: 0.20
2. Columbia Mid Cap Index Fund Class R5 Shares (CPXRX) ER: 0.26

I just read the summary prospectus for these funds. They track the S&P SmallCap 600 and S&P MidCap 400 Index respectively Since I tilt to small & mid caps (blends, not value), I wanted to ask BHs whether these two are good enough fund to go with? They are reasonably priced (albeit more than the VG funds), but they track different indices than the SCB and MCB funds offered by VG, so wasn't sure if this index is good or bad. Please advise. Thanks!

lack_ey
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Joined: Wed Nov 19, 2014 11:55 pm

Re: Small & Mid Cap Funds

Post by lack_ey » Mon Aug 08, 2016 9:13 pm

Vanguard switched to CRSP indexes for most US equity products a couple or few years back. In the rest of investmentland, most use S&P or Russell. The S&P 400 and S&P 600 are fairly widely followed. Vanguard actually has funds based on these too, primarily for the segment of the professional crowd who demand those specifically.

Vanguard's CRSP-based funds are actually out of step with most of the industry in defining the large/mid and mid/small breakpoints at different places, so their mid cap fund is a little larger than most others (contains what some others would call large caps) and the same goes for the small cap fund (contains what others would call mid caps).

About the S&P 400 and 600 specifically, note that these indexes are kind of curated by committee with some rules in terms of what they'll consider for inclusion and exclusion from the index. Some complain about this aspect of the S&P 500 but it's not really much of a deal at all there as it has all the largest companies at market cap weightings anyway. The differences with a more "objective" alternative are more at the fringes (which of the companies near the smaller end to include/exclude) and don't really move the needle.

But ~600 stocks is a fraction of the small/micro space, and the index requirement that companies have a history of earnings screens out some names that might in some views otherwise make the S&P 600 a bit more representative. You could analyze this as a quality factor screen; some seek this deliberately, but others would consider it a nuisance. But nevertheless they keep the sector weightings pretty close to what most have so it's not a huge difference at all.

jay22
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Location: Sacramento, CA

Re: Small & Mid Cap Funds

Post by jay22 » Mon Aug 08, 2016 9:35 pm

Thank you, lack_ey. I searched the forum, and you're right; some folks here specifically look for these two indices, so I am guessing they should be good enough.

jay22
Posts: 701
Joined: Thu Aug 23, 2012 8:56 am
Location: Sacramento, CA

Re: Small & Mid Cap Funds

Post by jay22 » Tue Aug 09, 2016 12:44 pm

Bumping this up to see if other BHs have any opinion on this.

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patrick013
Posts: 2011
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Re: Small & Mid Cap Funds

Post by patrick013 » Tue Aug 09, 2016 1:49 pm

The S&P 1500 which includes the 500, 600, and 400 indexes
hasn't been as widely used as VG Total Stock Market but the
funds that do have very similar returns to VG TSM.
age in bonds, buy-and-hold, 10 year business cycle

Stonebr
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Re: Small & Mid Cap Funds

Post by Stonebr » Tue Aug 09, 2016 3:02 pm

As has been said many times, there are things you can control in investing (manager risk, cost, taxes, turnover) and things you can't (everything else). These funds accomplish what you need. S&P has been doing indexes for longer than anybody except maybe Dow Jones.

When you start worrying about whether one index is "better" than another, you've gone astray in my opinion. Big investment companies like Vanguard, BlackRock and SSgA agonize over this stuff, but you don't need to.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear

jay22
Posts: 701
Joined: Thu Aug 23, 2012 8:56 am
Location: Sacramento, CA

Re: Small & Mid Cap Funds

Post by jay22 » Tue Aug 09, 2016 3:33 pm

Stonebr wrote:As has been said many times, there are things you can control in investing (manager risk, cost, taxes, turnover) and things you can't (everything else). These funds accomplish what you need. S&P has been doing indexes for longer than anybody except maybe Dow Jones.

When you start worrying about whether one index is "better" than another, you've gone astray in my opinion. Big investment companies like Vanguard, BlackRock and SSgA agonize over this stuff, but you don't need to.
That's a fair point, Stonebr. Thanks for your reply.

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