Is VWETX a Strong Bond Fund Right Now?
Having trouble finding a Investment Grade Bond - Long fund? Vanguard Long-Term Investment-Grade Income Admiral (VWETX) is a possible starting point. VWETX holds a Zacks Mutual Fund Rank of 3 (Hold), which is based on various forecasting factors like size, cost, and past performance.
Objective
The world of Investment Grade Bond - Long funds is an area filled with options, such as VWETX. With a focus on bonds that mature in more than 10 years, Investment Grade Bond - Long funds target the long end of the curve. Investors do inherit a higher duration risk with fixed income instruments at this maturity level, but these funds typically provide a higher yield, at least when compared to their short-maturity counterparts. Finally, investors should also note that the focus on investment grade does make these funds safer, but yields will be lower than in the junk bond category.
History of Fund/Manager
Vanguard Group is based in Malvern, PA, and is the manager of VWETX. Vanguard Long-Term Investment-Grade Income Admiral debuted in February of 2001. Since then, VWETX has accumulated assets of about $9.35 billion, according to the most recently available information. The fund's current manager is a team of investment professionals.
Performance
Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund has delivered a 5-year annualized total return of -2.09%, 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 3.53%, which places it in the bottom 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 VWETX over the past three years is 11.48% compared to the category average of 11.09%. Over the past 5 years, the standard deviation of the fund is 13.2% compared to the category average of 12.87%. This makes the fund more 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.
If you believe interest rates will rise, this is an important factor to look at. VWETX has a modified duration of 12.18, which suggests that the fund will decline 12.18% 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 4.56% means that a $10,000 investment should result in a yearly payout of $456.
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. Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture.
This fund has a beta of 1.69, meaning that it is more volatile than a broad market index of fixed income securities. Taking this into account, VWETX has a positive alpha of 2.02, which measures performance on a risk-adjusted basis.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, VWETX is a no load fund. It has an expense ratio of 0.10% compared to the category average of 0.70%. Looking at the fund from a cost perspective, VWETX is actually cheaper than its peers.
Investors need to be aware that with this product, the minimum initial investment is $50,000; 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
Overall, Vanguard Long-Term Investment-Grade Income Admiral ( VWETX ) has a neutral Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, this fund looks like a somewhat average choice for investors right now.
Your research on the Investment Grade Bond - Long 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. 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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