Vanguard Small Cap Index Fund Admiral Shares VSMAX

Vanguard Small Cap Index offers a well-diversified, low-turnover portfolio that is representative of the US small-cap market. These features, coupled with a best-in-class fee, make it one of the most compelling strategies in the small-blend Morningstar Category.

The fund tracks the CRSP US Small Cap Index, which sweeps in all small-cap US stocks that meet its market-cap criteria and are sufficiently easy to trade. These requirements help ensure the index represents its opportunity set and is easy to track. CRSP also takes measures during rebalances to make it more difficult for stocks to enter or exit the portfolio. This reduces turnover and the associated transaction costs, which can run high for difficult-to-trade small-cap stocks.

The fund weights its holdings by market cap, an efficient approach that harnesses the market’s consensus opinion of each stock’s relative value. Stocks that increase in size take up a larger share of the portfolio, while smaller companies that may be struggling take on a less important role. Its market-cap weighting also helps rein in turnover and promotes diversification. Annual turnover tends to run less than 20% per year, less than half its average peer. The top 10 holdings account for just a few percentage points of the portfolio, minimizing stock-specific risk.

The fund’s sector allocations and style orientation usually mimic the category average, which helps translate the fund’s low fee into a distinct performance advantage. Only the fund’s financial-services sector allocation deviated from the category norm by more than 3 percentage points at the end of February 2026. Stocks from that sector receive about 5% less weight than the category average.

The small-cap market tends to be quite volatile, but that volatility can breed periods of exceptional performance, such as after market crashes. Small caps tend to fall faster than their larger peers but rebound faster. This fund’s low fee and turnover-conscious approach can help it capitalize on these periods of outperformance while controlling for unnecessary risk. That has translated into a strong long-term track record. For the 10 years through February 2026, the exchange-traded share class’ 12% annualized return outpaced the category average by 1.7 percentage points.

Morningstar acquired the Center for Research in Security Prices, the provider of the index tracked by this fund, in February 2026. Morningstar analysts work independently from the index business, and the Morningstar Medalist Ratings for funds tracking CRSP indexes are based solely on the fund's investment merits. Analysts do not provide qualitative ratings or opinions for investments managed by Morningstar or managed investments that track Morningstar indexes that incorporate discretionary inputs assigned by Morningstar employees on an ongoing basis, such as Morningstar Economic Moat Ratings or ESG Risk Ratings.

The fund accurately represents the US small-cap market. Trading frictions can make indexing small-cap stocks difficult, but index rules that promote investability and low turnover mitigate those challenges, earning this fund an Above Average Process Pillar rating.

The fund tracks the CRSP US Small Cap Index, which sweeps in the bottom 85 to 98 percentiles of the US stock market by market capitalization. CRSP filters out stocks with a market cap below USD 15 million and float ratios lower than 12.5%. Current index constituents are subject to lower liquidity thresholds and can temporarily stray outside the index's targeted market-cap range. This allows growing companies to stay in the index a little longer since existing holdings can grow as large as the 81st percentile by market cap before being removed from the portfolio.

The index keeps close tabs on turnover to avoid unnecessary transaction costs. CRSP moves holdings in and out of the index through a "packeting" process, whereby only half of a position is moved at any rebalance. It also spreads out rebalancing trades over five days to minimize market impact and reduce trading costs. Some small-cap stocks can be difficult and expensive to trade, so these measures are especially important for indexes following this market segment.

The index weights its holdings by their float-adjusted market cap, which promotes diversification and minimizes turnover.

Small companies tend to be more volatile than their larger counterparts but may offer greater upside potential. While their businesses may not yet be mature and stable, the growth potential of promising small-cap stocks can lift the entire segment. Diversifying across a broad selection of small caps is sensible as it spreads risk yet still allows the portfolio to benefit from the winners.

By most measures, the portfolio closely resembles the average of its category peers. Valuation metrics tend to move in lockstep, and sector allocations rarely deviate by more than a few percentage points. Industrials and technology companies were the most heavily weighted at the end of February 2026. They jointly represent more than one-third of the portfolio, a similar allocation to its average peer.

The portfolio features larger companies than the category average, usually holding around one-third of its assets in mid-cap companies, triple the category norm. The average holding sported a market cap of USD 10.2 billion as of February 2026, more than USD 3 billion larger than the average. Smaller companies can be especially risky yet rewarding, so this difference may temper volatility relative to peers but could also limit upside during favorable market environments.

Vanguard's equity index group earns an Above Average People Pillar rating for its well-supported and stable management team adept at leveraging Vanguard's comprehensive resources. Its portfolio managers benefit from the firm's global infrastructure and advanced portfolio management technology, which facilitates cost-efficient trading around the globe. The infrequent turnover of managers, coupled with Vanguard's practice of rotating them across various funds, enhances their expertise and understanding of different market segments.

The fund's managers directly handle trading, providing them with deeper insights into the portfolio's operations than a stand-alone trader might have. They are backed by a global team of dedicated personnel and employ sophisticated, scalable technology to minimize their workload and enhance tracking accuracy. Vanguard's independent risk management team plays a crucial role in ensuring its funds adhere to predetermined tracking tolerances. It collaborates closely with the managers to oversee trades and proactively address potential issues. Vanguard compensates managers based on tracking error and excess return metrics to foster a culture of accountability and ensure that the management team's interests are closely tied to those of investors.

Vanguard maintains its High Parent Pillar rating as it continues to grow under new leadership.

CEO Salim Ramji has had a busy first year captaining Vanguard’s crew, and the ship remains pointed in the right direction. The firm made its largest round of fee cuts in early 2025, which came at an estimated cost of USD 350 million. It established a separate division dedicated to its advice and wealth management efforts, a sign that it wants to seriously compete within those lines of business. Asset growth has continued to be a huge success. Only BlackRock’s inflows rival the money Vanguard is taking in. Likewise, the number of clients it serves has more than doubled since 2015.

Despite that success, an ever-growing number of clients has presented a challenge: Vanguard can’t grow its services fast enough to keep up with demand. In some instances, it has had to curb certain services and capabilities or raise fees on others to cope, causing some loyal clients to criticize what they perceive as deteriorating services.

Vanguard has ambitions to bring its disruptive legacy to the bond market. It created roughly a dozen low-cost bond exchange-traded funds for US investors and several others abroad over the 12 months through June 2025. All have low fees in their respective categories, and the actively managed strategies align with Vanguard’s philosophy. They are relatively easy to understand and are conservatively managed.

Vanguard has another opportunity to prove that clients are still its priority. On the surface, its endeavor into the high-fee deal-making world of private assets alongside Wellington and Blackstone looks like a cultural mismatch. So far, the collaboration hasn’t produced anything that’s concerning.

The ETF share class outperformed the category average by 1.8 percentage points, annualized from its 2004 inception through February 2026. Its larger-than-average market cap limited drawdowns, helping the fund earn a sturdy risk-adjusted return advantage.

Turnover-friendly index rules helped the fund achieve its sizable advantage. For example, its market-cap weighting and leniency around the upper market-cap bound allow for fast-growing companies to remain in the portfolio long after they’ve crossed into mid-cap territory. The fund usually holds several stocks too large to be considered for most small-cap index funds. Their inclusion allows the fund to receive the full benefit of a small stock’s rise into mid-cap territory, and it helped the fund realize 103% of the category norm’s upside since its inception.

The fund’s larger size also offered some reprieve during down markets. It has protected investors from downturns more effectively than the average of its peers. A larger allocation to mid-cap companies than some peers should marginally help contain volatility and drawdowns during periods of market stress. It has captured 97% of the category’s average downside since 2004.

Vanguard Small Cap Index Admiral Shares's Prospectus Adjusted Expense Ratio is 0.05% per year. It places it in the cheapest quintile of the Morningstar US Fund Small Blend Category, where the median fee is 0.94% per year. This cost positioning translates into a Medalist Rating Price Score of 2.36, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.