Is FCAMX a Strong Bond Fund Right Now?
If you have been looking for Muni - Bonds funds, a place to start could be Franklin California High Yield Municipals A (FCAMX). FCAMX possesses a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.
Objective
FCAMX is one of many Muni - Bonds funds to choose from. Muni - Bonds funds invest in debt securities issued by states and local municipalities, which are typically used to pay for infrastructure construction, schools, and other government functions. These securities can be backed by taxes (revenue bonds), but others are known as "general obligation" and are not necessarily backed by a defined source. These bonds are especially attractive because of their inherent tax benefits.
History of Fund/Manager
FCAMX is a part of the Franklin family of funds, a company based out of San Mateo, CA. Since Franklin California High Yield Municipals A made its debut in May of 1993, FCAMX has garnered more than $646.73 million in assets. A team of investment professionals is the fund's current manager.
Performance
Obviously, what investors are looking for in these funds is strong performance relative to their peers. FCAMX has a 5-year annualized total return of 0.69%, and is in the middle third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 4.73%, which places it in the top 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. FCAMX's standard deviation over the past three years is 6.42% compared to the category average of 9.98%. The standard deviation of the fund over the past 5 years is 7.3% compared to the category average of 11.62%. This makes the fund less volatile than its peers over the past half-decade.
Bond Duration
Modified duration is a measure of a given bond's interest rate sensitivity, so when judging how fixed income securities will respond in a shifting rate environment, it is an excellent figure to look at.
For those that believe interest rates will rise, this is an important factor to consider. FCAMX has a modified duration of 8.39, which suggests that the fund will decline 8.39% for every hundred-basis-point increase in interest rates.
Income
Since income is, of course, a big reason for purchasing a fixed income security, it is always important to consider the fund's average coupon. This metric calculates the fund's average payout in a given year. For example, this fund's average coupon of 5.14% means that a $10,000 investment should result in a yearly payout of $514.
While a higher coupon is good for when you want a strong level of current income, it could present 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.
This fund has a beta of 0.79, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, FCAMX has a positive alpha of 0.12, 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, FCAMX has 21.52% in high quality bonds rated at least "AA" or higher, while 23.86% are of medium quality, with ratings of "A" to "BBB". The fund has an average quality of BBB, and focuses on medium quality securities.However, it is worth noting that 48% of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.
Expenses
As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital for investors. In terms of fees, FCAMX is a load fund. It has an expense ratio of 0.66% compared to the category average of 0.88%. FCAMX is actually cheaper than its peers when you consider factors like cost.
Investors need to be aware that with this product, the minimum initial investment is $1,000; each subsequent investment has no minimum amount.
Fees charged by investment advisors have not been taken into consideration. Returns would be less if those were included.
Bottom Line
Overall, Franklin California High Yield Municipals A ( FCAMX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, Franklin California High Yield Municipals A ( FCAMX ) looks like a good potential choice for investors right now.
This could just be the start of your research on FCAMX in the Muni - Bonds category. Consider going to www.zacks.com/funds/mutual-funds for additional information about this fund, and all the others that we rank as well for additional information. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.
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This article originally published on Zacks Investment Research (zacks.com).
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