Is GHYAX a Strong Bond Fund Right Now?
If you have been looking for Muni - Bonds funds, a place to start could be Goldman Sachs High Yield Municipals A (GHYAX). GHYAX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.
Objective
We classify GHYAX in the Muni - Bonds category, an area rife with potential choices. Muni - Bonds funds focus their investments on debt securities issued by state and local governments. These are typically used to pay for the construction of infrastructure, the operation of public schools, and other municipal functions. These securities can come in the form of revenue bonds, which are backed by taxes, as well as "general obligation" bonds that are not backed by a defined source. Investors are usually interested that come with most municipal bonds, which can be especially important for those in higher tax brackets.
History of Fund/Manager
Goldman Sachs is based in New York, NY, and is the manager of GHYAX. Since Goldman Sachs High Yield Municipals A made its debut in April of 2000, GHYAX has garnered more than $423.12 million in assets. The fund is currently managed by a team of investment professionals.
Performance
Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund carries a 5-year annualized total return of 1.3%, and it sits 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 4.94%, 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. GHYAX's standard deviation over the past three years is 7.46% compared to the category average of 10.97%. Over the past 5 years, the standard deviation of the fund is 8.1% compared to the category average of 12.31%. 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.
If you believe interest rates will rise, this is an important factor to look at. GHYAX has a modified duration of 8.44, which suggests that the fund will decline 8.44% 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 takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5.26% means that a $10,000 investment should result in a yearly payout of $526.
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.
With a beta of 0.78, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, GHYAX has a positive alpha of 1.11 , 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, GHYAX has 25.14% in medium quality bonds, with ratings of "A" to "BBB". The fund's junk bond component-bonds rated "BB" or below-is at 15.68%, giving GHYAX an average quality of BBB. This means that it focuses on medium quality securities.However, it is worth noting that 47% of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.
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, GHYAX is a load fund. It has an expense ratio of 0.85% compared to the category average of 0.94%. From a cost perspective, GHYAX is actually cheaper than its peers.
This fund requires a minimum initial investment of $1,000, and each subsequent investment should be at least $50.
Fees charged by investment advisors have not been taken into consideration. Returns would be less if those were included.
Bottom Line
Overall, Goldman Sachs High Yield Municipals A ( GHYAX ) 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.
For additional information on the Muni - Bonds area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into GHYAX too for additional information. And don't forget, Zacks has all of your needs covered on the equity side too! Make sure to check out Zacks.com for more information on our screening capabilities, Rank, and all our articles as well.
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This article originally published on Zacks Investment Research (zacks.com).
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