Is VFIJX a Strong Bond Fund Right Now?

Looking for a Government Mortgage - Intermediate fund? You may want to consider Vanguard GNMA Admiral (VFIJX) as a possible option. The fund does not have a Zacks Mutual Fund Rank, though we have been able to explore other metrics like performance, volatility, and cost.

Objective

We classify VFIJX 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

Vanguard Group is based in Malvern, PA, and is the manager of VFIJX. Vanguard GNMA Admiral debuted in February of 2001. Since then, VFIJX has accumulated assets of about $9.14 billion, according to the most recently available information. Brian Conroy is the fund's current manager and has held that role since May of 2019.

Performance

Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 0.54%, 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 4.01%, 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. VFIJX's standard deviation over the past three years is 5.98% compared to the category average of 9.15%. The fund's standard deviation over the past 5 years is 6.48% compared to the category average of 10.3%. 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.

If you believe interest rates will rise, this is an important factor to look at. VFIJX has a modified duration of 5.19, which suggests that the fund will decline 5.19% 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. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 3.7% means that a $10,000 investment should result in a yearly payout of $370.

A higher coupon is good for those seeking a strong level of current income, but it could also pose a reinvestment risk 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

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, VFIJX is a no load fund. It has an expense ratio of 0.11% compared to the category average of 0.84%. From a cost perspective, VFIJX is actually cheaper than its peers.

While the minimum initial investment for the product is $50,000, investors should also note that each subsequent investment needs to be at least $1.

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

Bottom Line

This could just be the start of your research on VFIJX in the Government Mortgage - 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 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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This article originally published on Zacks Investment Research (zacks.com).

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