Discussion 5

Southern New Hampshire University **We aren't endorsed by this school
FIN 335
Oct 26, 2023
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Hello Class, Vanguard 500 Index Fund Admiral Shares (VFIAX) is a large Blend of domestic stocks that allows investors to "gain diversified exposure to the U.S. equity market." (Vanguard). Much like the S&P 500, the fund is primarily invested in the 500 largest companies in the U.S. It has equity in industries such as communications, utilities, etc. with the largest being the information technology sector which comprises 23.20% of the fund. "As of 4 Feb 2020, the Net Asset Value (NAV) for the fund was $304.68". (MorningStar 2020). In this week's module, Teall explained that NAV is calculated by "valuing net assets at the end of a given trading period, typically at the end of a day. NAV depends more on the initial investment amounts or prior NAV levels." (2018). According to the Vanguard site, the NAV for their mutual funds is calculated by taking the current value of all the fund's assets, subtracting the liabilities, and dividing the result by the total number of outstanding shares. "Proper risk-adjusted benchmarks for comparison need to be established when evaluating portfolio returns." (Teall, 2018). VFIAX intends to track the performance of the S&P 500 benchmark. It also attempts to replicate it by investing substantially in all of the assets that make up the benchmark. Moreover, they hold "each stock in approximately the same proportion as its weighting in the index." (Vanguard, 2019). I believe that such a meticulous approach is the reason why both funds have performed near identically with slight deviations of less than 0.05% (see figure 1).
Figure 1. Vanguard 500 Index Fund Admiral Shares and Benchmark Comparison. (Vanguard 2019). I think the fund and the benchmark are increasing in value because the market is moving in an upward trend. Interest rates are low so big firms can fund expansion and new projects using loans. Companies like Apple, Alphabet, and Netflix recently had increased earnings call that surpassed the forecasts which in turn has triggered continuous investment from current and new shareholders. Given that these funds are comprised primarily of IT shares that include the three companies aforementioned coupled with increased investor confidence this explains the rise and positive ten-year return. References MorningStar. (2020). VFIAX NAV. Retrieved from https://www.morningstar.com/funds/xnas/vfiax/quote
Teall, J. (2018). Financial Trading and Investing, 2nd Edition. London, United Kingdom: Candice Janco. Vanguard (2019). Fact Sheet: Vanguard 500 Index Fund. Retrieved from https://institutional.vanguard.com/iippdf/pdfs/FS540.pdf Vanguard (2020). Vanguard 500 Index Fund Admiral Shares (VFIAX). Retrieved from https://investor.vanguard.com/mutual-funds/profile/overview/vfiax
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