Is FIHBX a Strong Bond Fund Right Now?

If you have been looking for High Yield - Bonds funds, it would not be wise to start your search with Federated Institutional High Yield Bond (FIHBX). FIHBX possesses a Zacks Mutual Fund Rank of 5 (Strong Sell), which is based on various forecasting factors like size, cost, and past performance.

Objective

FIHBX is classified in the High Yield - Bonds segment by Zacks, an area full of investment possibilities. High Yield - Bonds funds come in below investment grade, and are referred to as "junk" bonds for this reason. Compared to their investment grade peers, these funds are at a higher default risk, but typically pay out higher yields while posing similar interest rate risks.

History of Fund/Manager

Federated is based in Pittsburgh, PA, and is the manager of FIHBX. Federated Institutional High Yield Bond made its debut in November of 2002, and since then, FIHBX has accumulated about $3.22 billion in assets, per the most up-to-date date available. The fund's current manager is a team of investment professionals.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. FIHBX has a 5-year annualized total return of 3.41%, and it sits in the bottom 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 7.82%, 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. The standard deviation of FIHBX over the past three years is 4.43% compared to the category average of 9.18%. The fund's standard deviation over the past 5 years is 6.7% compared to the category average of 11.04%. 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, and is a metric that's a good way to judge how fixed income securities will respond in a shifting rate environment.

For those that believe interest rates will rise, this is an important factor to consider. FIHBX has a modified duration of 2.6, which suggests that the fund will decline 2.6% for every hundred-basis-point increase in interest rates.

Income

Income is often a big reason for purchasing a fixed income security, so it is important to consider the fund's average coupon. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 6.32% means that a $10,000 investment should result in a yearly payout of $632.

A higher coupon is good for those seeking a strong level of current income, but it could also 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.

Expenses

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, FIHBX is a no load fund. It has an expense ratio of 0.50% compared to the category average of 0.92%. From a cost perspective, FIHBX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $1.00 million; 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, even with its comparatively weak performance, average downside risk, and lower fees, Federated Institutional High Yield Bond ( FIHBX ) has a low Zacks Mutual Fund rank, and therefore looks a somewhat weak choice for investors right now.

Want even more information about FIHBX? Then go over to Zacks.com and check out our mutual fund comparison tool, and all of the other great features that we have to help you with your mutual fund analysis for additional information. For analysis of the rest of your portfolio, make sure to visit Zacks.com for our full suite of tools which will help you investigate all of your stocks and funds in one place.

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