Is PDVYX a Strong Bond Fund Right Now?
Having trouble finding a Diversified Bonds fund? Well, Putnam Diversified Income Y (PDVYX) would not be a good potential starting point right now. PDVYX possesses a Zacks Mutual Fund Rank of 5 (Strong Sell), which is based on various forecasting factors like size, cost, and past performance.
Objective
We classify PDVYX in the Diversified Bonds category, an area that is rife with potential choices.Diversified Bonds funds offer exposure to a wide variety of fixed income types, stretching across various issuers, credit levels, and maturities. Generally speaking, bond funds here will have sizable exposure to government debt, as well as modest holdings in the corporate bond market too.
History of Fund/Manager
Franklin is responsible for PDVYX, and the company is based out of San Mateo, CA. Since Putnam Diversified Income Y made its debut in October of 1998, PDVYX has garnered more than $365.78 million in assets. The fund is currently managed by a team of investment professionals.
Performance
Of course, investors look for strong performance in funds. This fund in particular has delivered a 5-year annualized total return of 2.27%, and is in the bottom third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 7.14%, 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. PDVYX's standard deviation over the past three years is 4.73% compared to the category average of 9.78%. The standard deviation of the fund over the past 5 years is 4.73% compared to the category average of 11.44%. 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. PDVYX has a modified duration of 3.45, which suggests that the fund will decline 3.45% 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. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 5.41% means that a $10,000 investment should result in a yearly payout of $541.
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. Income is only one part of the bond picture, investors also need to consider risk relative to broad benchmarks.
With a beta of 0.72, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, PDVYX has a positive alpha of 0.44 , 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, PDVYX has 22.86% in medium quality bonds, with ratings of "A" to "BBB". The fund's junk bond component-bonds rated "BB" or below-is at 32.66%, giving PDVYX an average quality of BBB. This means that it focuses on medium quality securities.However, it is worth noting that 30% of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.
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, PDVYX is a no load fund. It has an expense ratio of 0.73% compared to the category average of 0.93%. From a cost perspective, PDVYX is actually cheaper than its peers.
Investors need to be aware that with this product, the minimum initial investment is $0; 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, better downside risk, and lower fees, Putnam Diversified Income Y ( PDVYX ) has a low Zacks Mutual Fund rank, and therefore looks a somewhat weak 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. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.
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