Is PTTAX a Strong Bond Fund Right Now?
Having trouble finding a Investment Grade Bond - Intermediate fund? PIMCO Total Return A (PTTAX) is a potential starting point. PTTAX holds a Zacks Mutual Fund Rank of 2 (Buy), which is based on various forecasting factors like size, cost, and past performance.
Objective
We classify PTTAX in the Investment Grade Bond - Intermediate category, an area rife with potential choices. Investment Grade Bond - Intermediate funds target the middle part of the curve, typically by investing in bonds that mature in more than three years but less than 15 years. At these maturity levels, fixed income instruments have medium duration risk--but they compensate investors with a respectable yield compared to shorter maturity options. Finally, a focus on investment grade ensures that these funds are safer, but yields will be lower than in the junk bond category.
History of Fund/Manager
PIMCO Funds is based in Newport Beach, CA, and is the manager of PTTAX. PIMCO Total Return A debuted in May of 1987. Since then, PTTAX has accumulated assets of about $3.85 billion, according to the most recently available information. The fund is currently managed by a team of investment professionals.
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 0.37%, and it sits in the middle 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 4.37%, 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. The standard deviation of PTTAX over the past three years is 6.36% compared to the category average of 10.12%. Over the past 5 years, the standard deviation of the fund is 6.74% compared to the category average of 11.77%. 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. PTTAX has a modified duration of 6.51, which suggests that the fund will decline 6.51% for every hundred-basis-point increase in interest rates.
This fund has a beta of 1.02, meaning that it is more volatile than a broad market index of fixed income securities. Taking this into account, PTTAX has a positive alpha of 0.33, 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, PTTAX has 74.3% 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, PTTAX is a load fund. It has an expense ratio of 0.80% compared to the category average of 0.89%. Looking at the fund from a cost perspective, PTTAX is actually cheaper than its peers.
Investors should also note that the minimum initial investment for the product is $1,000 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, PIMCO Total Return A ( PTTAX ) 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.
This could just be the start of your research on PTTAX in the Investment Grade Bond - Intermediate 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. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.
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This article originally published on Zacks Investment Research (zacks.com).
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