Is FTAZX a Strong Bond Fund Right Now?

If investors are looking at the Muni - Bonds fund category, Franklin Arizona Tax-Free Income A (FTAZX) could be a potential option. FTAZX bears a Zacks Mutual Fund Rank of 2 (Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

We classify FTAZX 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

Franklin is based in San Mateo, CA, and is the manager of FTAZX. The Franklin Arizona Tax-Free Income A made its debut in September of 1987 and FTAZX has managed to accumulate roughly $249.35 million in assets, as of the most recently available information. The fund's current manager is a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. FTAZX has a 5-year annualized total return of 0.64%, and is in the middle 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 4.04%, 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 9.95%, the standard deviation of FTAZX over the past three years is 5.94%. Over the past 5 years, the standard deviation of the fund is 6.38% compared to the category average of 11.51%. This makes the fund less volatile than its peers over the past half-decade.

Bond Duration

Modified duration is a measure of a specific bond's interest rate sensitivity, and is an excellent way to judge how fixed income securities will respond to a shifting rate environment.

For investors who think interest rates will rise, this is an important factor to consider. FTAZX has a modified duration of 7.96, which suggests that the fund will decline 7.96% 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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.65% means that a $10,000 investment should result in a yearly payout of $465.

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.

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, FTAZX is a load fund. It has an expense ratio of 0.68% compared to the category average of 0.90%. FTAZX 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 $1,000 and that 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

Overall, Franklin Arizona Tax-Free Income A ( FTAZX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, better downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

Your research on the Muni - Bonds 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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