Is BCHYX a Strong Bond Fund Right Now?

If investors are looking at the Muni - Bonds fund category, American Century CA High Yield Municipal Investor (BCHYX) could be a potential option. BCHYX possesses a Zacks Mutual Fund Rank of 2 (Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

BCHYX 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

American Century is based in Kansas City, MO, and is the manager of BCHYX. Since American Century CA High Yield Municipal Investor made its debut in December of 1986, BCHYX has garnered more than $735.48 million in assets. Joseph Gotelli is the fund's current manager and has held that role since January of 2012.

Performance

Of course, investors look for strong performance in funds. This fund carries a 5-year annualized total return of 0.78%, 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 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. BCHYX's standard deviation over the past three years is 6.98% compared to the category average of 9.98%. The fund's standard deviation over the past 5 years is 7.58% compared to the category average of 11.62%. 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 those that believe interest rates will rise, this is an important factor to consider. BCHYX has a modified duration of 8.38, which suggests that the fund will decline 8.38% 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 4.72% means that a $10,000 investment should result in a yearly payout of $472.

If you are looking for a strong level of current income, a higher coupon is a good choice, though it could pose a reinvestment risk; these risks can occur if rates are lower in the future when compared to the initial purchase date of the bond. Since income is just one part of the bond picture, investors need to consider risk relative to broad benchmarks.

With a beta of 0.85, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, BCHYX has a positive alpha of 0.34 , 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, BCHYX has 26.68% in high quality bonds rated at least "AA" or higher, while 25.28% are of medium quality, 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 45% of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.

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, BCHYX is a no load fund. It has an expense ratio of 0.49% compared to the category average of 0.88%. BCHYX is actually cheaper than its peers when you consider factors like cost.

Investors should also note that the minimum initial investment for the product is $2,500 and that each subsequent investment needs to be at $50.

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

Bottom Line

Overall, American Century CA High Yield Municipal Investor ( BCHYX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

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 BCHYX to its peers as well for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.

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