Is VNYTX a Strong Bond Fund Right Now?
If you have been looking for Muni - Bonds funds, a place to start could be Vanguard NY Long-Term Tax-Exempt Investor (VNYTX). VNYTX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.
Objective
VNYTX 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
VNYTX finds itself in the Vanguard Group family, based out of Malvern, PA. The Vanguard NY Long-Term Tax-Exempt Investor made its debut in April of 1986 and VNYTX has managed to accumulate roughly $625.21 million in assets, as of the most recently available information. The fund is currently managed by Adam Ferguson who has been in charge of the fund since June of 2013.
Performance
Of course, investors look for strong performance in funds. This fund has delivered a 5-year annualized total return of 1.08%, and is in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 4.35%, 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. The standard deviation of VNYTX over the past three years is 6.79% compared to the category average of 8.87%. The fund's standard deviation over the past 5 years is 7.55% compared to the category average of 10.15%. 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 investors who think interest rates will rise, this is an important factor to consider. VNYTX has a modified duration of 8.11, which suggests that the fund will decline 8.11% for every hundred-basis-point increase in interest rates.
Income
We must remember to consider the fund's average coupon, as income is traditionally a big reason for purchasing a fixed income security. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.47% means that a $10,000 investment should result in a yearly payout of $447.
For those seeking a strong level of current income, a higher coupon is typically good news. However, it could 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 0.83, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, VNYTX has a positive alpha of 0.68 , 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, VNYTX has 68.14% in high quality bonds rated at least "AA" or higher, while 25.67% are of medium quality, with ratings of "A" to "BBB". The fund has an average quality of AA, and focuses on high quality securities.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, VNYTX is a no load fund. It has an expense ratio of 0.15% compared to the category average of 0.80%. VNYTX is actually cheaper than its peers when you consider factors like cost.
While the minimum initial investment for the product is $3,000, investors should also note that 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
Overall, Vanguard NY Long-Term Tax-Exempt Investor ( VNYTX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.
Want even more information about VNYTX? 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. 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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