Question

Identify a mutual fund that focuses on international equities. It could be a single country fund, a regional fund, or a non-U.S. global fund. It needs to be at least five years old. You may want to go directly to an investment company website such as Fidelity, Vanguard, etc.

Provide a brief introduction to the fund (about a paragraph) indicating its investment objective, size, turnover, and fee structure. Report on its performance during the past five years. (You don't need to compute this return if the information is available.) Determine the actual return for the fund over the 12 months ending December 2019. (This requires you to obtain prices and cash distributions from a source such as Yahoo Finance.) If an investor invested $10,000 at the end of December 2018, how much would his or her investment be worth by the end of December 2019? What is the level of management fees charged by the fund? Is this reflected in your assessment of return? Finally, what is the appropriate benchmark this fund should be compared to? Would this investor have been better off if they had been able to invest in the benchmark?

Answer 1

The mutual fund is Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX).

This fund offers investors a low-cost way to gain equity exposure to emerging markets. The fund invests in stocks of companies located in emerging markets around the world, such as Brazil, Russia, India, Taiwan, and China. The size of the fund is $85.7 billion, and holds 5,059 stocks. The fund has an expense ratio of 0.14%, and no purchase fee (front load), redemption fee (back load) or 12b-1 fee. It has a turnover rate of 8.9%.

During the past 5 years, it has earned a total cumulative return of -5.63%, and annualized return of -1.15%.

Actual return during 2019 = (NAV at end of 2019 - NAV at beginning of 2019 + dividends during year) / NAV at beginning of 2019

Actual return during 2019 = ($36.43 - $33.28 + $1.18) / $33.28

Actual return during 2019 = 13.01%

Investment worth at end of 2019 = amount invested * (1 + Actual return during 2019)

Investment worth at end of 2019 = $10,000 * (1 + 13.01%)

Investment worth at end of 2019 = $11,301

The management fees charged by the fund is 0.11%. Yes, this is reflected in the assessment of return because the NAV is calculated after accounting for management fee and expenses.

The benchmark used by the fund is Spliced Emerging Markets Index, which had a total cumulative return of -5.34% and an annualized return of -1.09% during the past 5 years. An investor would have been better off if they had been able to invest in the benchmark, because the benchmark returns are higher than the fund returns during the past 5 years.