Is MWTSX a Strong Bond Fund Right Now?
There are plenty of choices in the Diversified Bonds category, but where should you start your research? Well, one fund that may not be worth investigating is Metropolitan West Total Retail Bond Plan (MWTSX). MWTSX has a Zacks Mutual Fund Rank of 4 (Sell), which is based on various forecasting factors like size, cost, and past performance.
Objective
We classify MWTSX in the Diversified Bonds category, an area that is rife with potential choices.Diversified Bonds funds offer exposure to a wide variety of fixed income types, stretching across various issuers, credit levels, and maturities. Generally speaking, bond funds here will have sizable exposure to government debt, as well as modest holdings in the corporate bond market too.
History of Fund/Manager
TCW is based in Los Angeles, CA, and is the manager of MWTSX. The Metropolitan West Total Retail Bond Plan made its debut in August of 2011 and MWTSX has managed to accumulate roughly $7.80 billion in assets, as of the most recently available information. The fund is currently managed by a team of investment professionals.
Performance
Investors naturally seek funds with strong performance. MWTSX has a 5-year annualized total return of -0.17%, and is 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 4.41%, 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 9.81%, the standard deviation of MWTSX over the past three years is 6.66%. The standard deviation of the fund over the past 5 years is 7.24% compared to the category average of 11.39%. 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. MWTSX has a modified duration of 5.97, which suggests that the fund will decline 5.97% 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 calculates the fund's average payout in a given year. For example, this fund's average coupon of 3.89% means that a $10,000 investment should result in a yearly payout of $389.
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. Income is only one part of the bond picture, investors also need to consider risk relative to broad benchmarks.
With a beta of 1.11, this fund is more volatile than a broad market index of fixed income securities. Taking this into account, MWTSX has a positive alpha of 0.27 , 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, MWTSX has 72.83% in high quality bonds rated at least "AA" or higher. The fund has an average quality of AA, and focuses on high quality securities.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, MWTSX is a no load fund. It has an expense ratio of 0.38% compared to the category average of 0.88%. From a cost perspective, MWTSX is actually cheaper than its peers.
Investors need to be aware that with this product, the minimum initial investment is $25.00 million; each subsequent investment needs to be at least $50,000.
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, Metropolitan West Total Retail Bond Plan ( MWTSX ) has a low Zacks Mutual Fund rank, and therefore looks a somewhat weak choice for investors right now.
For additional information on the Diversified Bonds 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 MWTSX too for additional information. And don't forget, Zacks has all of your needs covered on the equity side too! Make sure to check out Zacks.com for more information on our screening capabilities, Rank, and all our articles as well.
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This article originally published on Zacks Investment Research (zacks.com).
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