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This Value Fund Offers Active Management at a Passive Price

Jason Kephart, CFA

Jason Kephart: This week's Morningstar Medalist is Vanguard US Value (VUVLX). This fund proves you don't have to make big bets to outperform an index.

It's run by Vanguard's in-house quantitative equity team. The team applies its five-factor screen to the Russel 3000 Value Index for this fund. The five-factor screen looks for companies that will grow earnings faster than peers by looking at factors like earnings growth, balance-sheet quality, and management decisions. It also considers valuation, to make sure that the fund isn't overpaying for growth, and momentum, to make sure that the market isn't picking up on something that isn't found in the numbers.

The fund will only overweight or underweight a company by up to 50 basis points, though. So, that means, over short time periods, it's probably going to look a lot like the index. Those small bets could pay off big in the long term, though. During the last five years, the fund has returned 11% compared with an 8% return for the index.

Fees are a big part of the outperformance. At 26 basis points, this fund is actually cheaper than some passive ETFs. For investors who are considering an active option, this is definitely a fund that should on their radar.