Is FGMNX a Strong Bond Fund Right Now?

Any investors who are searching for Government Mortgage - Intermediate funds should take a look at Fidelity GNMA Fund (FGMNX). FGMNX has no Zacks Mutual Fund Rank, but we have been able to look into other metrics like performance, volatility, and cost.

Objective

We classify FGMNX in the Government Mortgage - Intermediate category, an area full of potential choices. Government Mortgage - Intermediate funds focus on the mortgage-backed securities (MBS) market, which packages mortgages together and then sells off the pooled securities as a MBS. Honing in on MBS' that have at least three years to maturity but less than 10, this fund category presents a medium risk and yield profile.

History of Fund/Manager

Fidelity is based in Boston, MA, and is the manager of FGMNX. Fidelity GNMA Fund debuted in November of 1985. Since then, FGMNX has accumulated assets of about $1.71 billion, according to the most recently available information. The fund is currently managed by Franco Castagliuolo who has been in charge of the fund since December of 2009.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund in particular has delivered a 5-year annualized total return of 0.44%, and it sits in the bottom 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 4.07%, which places it in the middle 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. FGMNX's standard deviation over the past three years is 6.21% compared to the category average of 7.88%. The standard deviation of the fund over the past 5 years is 6.62% compared to the category average of 8.09%. 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.

If you believe interest rates will rise, this is an important factor to look at. FGMNX has a modified duration of 5.07, which suggests that the fund will decline 5.07% 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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 3.75% means that a $10,000 investment should result in a yearly payout of $375.

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. Because income is only one part of the bond picture, investors should also consider risk relative to broad benchmarks.

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, FGMNX is a no load fund. It has an expense ratio of 0.45% compared to the category average of 0.75%. Looking at the fund from a cost perspective, FGMNX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $0; each subsequent investment has no minimum amount.

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

Bottom Line

For additional information on the Government Mortgage - Intermediate area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into FGMNX too for additional information. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.

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This article originally published on Zacks Investment Research (zacks.com).

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