Is VWAHX a Strong Bond Fund Right Now?
Muni - Bonds fund seekers should consider taking a look at Vanguard High-Yield Tax-Exempt Investor (VWAHX). VWAHX holds 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 VWAHX 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
Vanguard Group is responsible for VWAHX, and the company is based out of Malvern, PA. The Vanguard High-Yield Tax-Exempt Investor made its debut in December of 1978 and VWAHX has managed to accumulate roughly $1.90 billion in assets, as of the most recently available information. Mathew Kiselak is the fund's current manager and has held that role since July of 2010.
Performance
Of course, investors look for strong performance in funds. VWAHX has a 5-year annualized total return of 1.28%, and it sits in the top 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 5.17%, 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. Compared to the category average of 8.91%, the standard deviation of VWAHX over the past three years is 7%. The standard deviation of the fund over the past 5 years is 7.44% compared to the category average of 9.85%. 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.
For investors who think interest rates will rise, this is an important factor to consider. VWAHX has a modified duration of 7.94, which suggests that the fund will decline 7.94% 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. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 4.75% means that a $10,000 investment should result in a yearly payout of $475.
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. Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture.
With a beta of 0.74, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, VWAHX has a positive alpha of 1.01 , 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, VWAHX has 23.78% in high quality bonds rated at least "AA" or higher, while 52.22% are of medium quality, with ratings of "A" to "BBB". The fund has an average quality of A, 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, VWAHX is a no load fund and it has an expense ratio of 0.17%.
Investors need to be aware that with this product, the minimum initial investment is $3,000; 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 puts this fund from Vanguard Group in the top 20% of all mutual funds we have a rank on right now. As a result, this is likely an excellent choice for investors seeking an option in the Muni - Bonds category.
Don't stop here for your research on Muni - Bonds funds. We also have plenty more on our site in order to help you find the best possible fund for your portfolio. Make sure to check out www.zacks.com/funds/mutual-funds for more information about the world of funds, and feel free to compare VWAHX to its peers as well 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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This article originally published on Zacks Investment Research (zacks.com).
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