Is ACTDX a Strong Bond Fund Right Now?
On the lookout for a Muni - Bonds fund? Starting with Invesco High Yield Municipals Y (ACTDX) should not be a possibility at this time. ACTDX has a Zacks Mutual Fund Rank of 5 (Strong Sell), which is based on various forecasting factors like size, cost, and past performance.
Objective
ACTDX 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
Invesco is based in Kansas City, MO, and is the manager of ACTDX. Invesco High Yield Municipals Y debuted in March of 2006. Since then, ACTDX has accumulated assets of about $1.70 billion, according to the most recently available information. A team of investment professionals is the fund's current manager.
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 0.55%, 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 4.62%, 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. Compared to the category average of 9.94%, the standard deviation of ACTDX over the past three years is 7.58%. The fund's standard deviation over the past 5 years is 8.5% compared to the category average of 11.6%. 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. ACTDX has a modified duration of 9.53, which suggests that the fund will decline 9.53% for every hundred-basis-point increase in interest rates.
Income
Since income is, of course, a big reason for purchasing a fixed income security, it is always important to consider the fund's average coupon. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5.85% means that a $10,000 investment should result in a yearly payout of $585.
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.
With a beta of 0.92, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, ACTDX has a positive alpha of 0.73 , 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, ACTDX has 18.52% in medium quality bonds, with ratings of "A" to "BBB". The fund has an average quality of BBB, and focuses on medium quality securities.However, it is worth noting that 52% of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.
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, ACTDX is a no load fund. It has an expense ratio of 0.60% compared to the category average of 0.91%. So, ACTDX is actually cheaper than its peers from a cost perspective.
While the minimum initial investment for the product is $1,000, investors should also note that each subsequent investment needs to be at least $50.
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, average downside risk, and lower fees, Invesco High Yield Municipals Y ( ACTDX ) has a low Zacks Mutual Fund rank, and therefore looks a somewhat weak choice for investors right now.
This could just be the start of your research on ACTDX in the Muni - 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).
Source Zacks-com
