Is BCOSX a Strong Bond Fund Right Now?

There are plenty of choices in the Diversified Bonds category, but where should you start your research? Well, one fund that might be worth investigating is Baird Core Plus Bond Investor (BCOSX). BCOSX has a Zacks Mutual Fund Rank of 2 (Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

BCOSX is one of many Diversified Bonds funds to choose from.Diversified Bonds funds give investors exposure to a variety of fixed income types that span across different issuers, maturities, and credit levels. Usually, these funds will have a good amount of exposure to government debt, in addition to modest holdings in the corporate bond market.

History of Fund/Manager

BCOSX finds itself in the Baird family, based out of Milwaukee, WI. Baird Core Plus Bond Investor debuted in September of 2000. Since then, BCOSX has accumulated assets of about $1.10 billion, according to the most recently available information. The fund's current manager is a team of investment professionals.

Performance

Of course, investors look for strong performance in funds. This fund carries a 5-year annualized total return of 0.55%, and is in the middle third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 4.1%, which places it in the middle third during this time-frame.

It is important to note that the product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund's [%] sale charge. If sales charges were included, total returns would have been lower.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. BCOSX's standard deviation over the past three years is 5.82% compared to the category average of 8.18%. Looking at the past 5 years, the fund's standard deviation is 6.36% compared to the category average of 9.43%. This makes the fund less volatile than its peers over the past half-decade.

Bond Duration

Modified duration is a measure of a specific bond's interest rate sensitivity, and is an excellent way to judge how fixed income securities will respond to a shifting rate environment.

For those that believe interest rates will rise, this is an important factor to consider. BCOSX has a modified duration of 5.76, which suggests that the fund will decline 5.76% for every hundred-basis-point increase in interest rates.

Income

It is important to consider the fund's average coupon because income is often a big reason for purchasing a fixed income security. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.16% means that a $10,000 investment should result in a yearly payout of $416.

For those seeking a strong level of current income, a higher coupon is typically good news. However, it could pose a reinvestment risk if rates are lower in the future when compared to the initial purchase date of the bond. Because income is only one part of the bond picture, investors should also consider risk relative to broad benchmarks.

BCOSX carries a beta of 0.95, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.28, which measures performance on a risk-adjusted basis.

Ratings

Investors should also consider a bond's rating, which is a grade "AAA" to "D" given to a bond that indicates its credit quality. With this letter scale in mind, BCOSX has 56.7% in high quality bonds rated at least "AA" or higher, while 40.6% are of medium quality, with ratings of "A" to "BBB". The fund has an average quality of A, and focuses on high quality securities.

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, BCOSX is a no load fund. It has an expense ratio of 0.55% compared to the category average of 0.79%. So, BCOSX is actually cheaper than its peers from a cost perspective.

Investors need to be aware that with this product, the minimum initial investment is $2,500; each subsequent investment needs to be at least $100.

Fees charged by investment advisors have not been taken into consideration. Returns would be less if those were included.

Bottom Line

Overall, Baird Core Plus Bond Investor ( BCOSX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

Your research on the Diversified Bonds segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. Want to learn even more? We have a full suite of tools on stocks that you can use to find the best choices for your portfolio too, no matter what kind of investor you are.

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