Is VBTIX a Strong Bond Fund Right Now?

Looking for a Diversified Bonds fund? You may want to consider Vanguard Total Bond Market Index Institutional (VBTIX) as a possible option. VBTIX has no Zacks Mutual Fund Rank, but we have been able to look into other metrics like performance, volatility, and cost.

Objective

We classify VBTIX 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

Vanguard Group is based in Malvern, PA, and is the manager of VBTIX. Since Vanguard Total Bond Market Index Institutional made its debut in September of 1995, VBTIX has garnered more than $44.48 billion in assets. Joshua Barrickman is the fund's current manager and has held that role since February of 2013.

Performance

Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 0.3%, and it sits in the middle third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 3.62%, 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. Over the past three years, VBTIX's standard deviation comes in at 5.54%, compared to the category average of 9.42%. Over the past 5 years, the standard deviation of the fund is 6.27% compared to the category average of 11.22%. 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 investors who think interest rates will rise, this is an important factor to consider. VBTIX 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

Income is often a big reason for purchasing a fixed income security, so it is 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 3.81% means that a $10,000 investment should result in a yearly payout of $381.

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.

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, VBTIX is a no load fund. It has an expense ratio of 0.03% compared to the category average of 0.84%. So, VBTIX is actually cheaper than its peers from a cost perspective.

Investors need to be aware that with this product, the minimum initial investment is $5.00 million; each subsequent investment needs to be at least $1.

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

Bottom Line

This could just be the start of your research on VBTIX in the Diversified 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. 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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This article originally published on Zacks Investment Research (zacks.com).

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