Is VPAIX a Strong Bond Fund Right Now?
If you have been looking for Muni - Bonds funds, a place to start could be Vanguard PA Long-Term Tax-Exempt Investor (VPAIX). VPAIX holds a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.
Objective
VPAIX is one of many Muni - Bonds funds to choose from. Muni - Bonds funds invest in debt securities issued by states and local municipalities, which are typically used to pay for infrastructure construction, schools, and other government functions. These securities can be backed by taxes (revenue bonds), but others are known as "general obligation" and are not necessarily backed by a defined source. These bonds are especially attractive because of their inherent tax benefits.
History of Fund/Manager
VPAIX finds itself in the Vanguard Group family, based out of Malvern, PA. Vanguard PA Long-Term Tax-Exempt Investor debuted in April of 1986. Since then, VPAIX has accumulated assets of about $325.86 million, according to the most recently available information. The fund's current manager, James D'Arcy, has been in charge of the fund since November of 2011.
Performance
Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 0.97%, and is in the top 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 4.32%, 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. Over the past three years, VPAIX's standard deviation comes in at 6.56%, compared to the category average of 8.44%. The standard deviation of the fund over the past 5 years is 7.15% compared to the category average of 9.62%. 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 those that believe interest rates will rise, this is an important factor to consider. VPAIX has a modified duration of 7.83, which suggests that the fund will decline 7.83% for every hundred-basis-point increase in interest rates.
Income
Income is often a big reason for purchasing a fixed income security, so it is important to consider the fund's average coupon. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.52% means that a $10,000 investment should result in a yearly payout of $452.
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.
VPAIX carries a beta of 0.79, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.51, 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, VPAIX has 52.53% in high quality bonds rated at least "AA" or higher, while 41.42% are of medium quality, with ratings of "A" to "BBB". The fund has an average quality of A, 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, VPAIX is a no load fund. It has an expense ratio of 0.15% compared to the category average of 0.83%. VPAIX is actually cheaper than its peers when you consider factors like cost.
Investors need to be aware that with this product, the minimum initial investment is $3,000; 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
Overall, Vanguard PA Long-Term Tax-Exempt Investor ( VPAIX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.
For additional information on the Muni - 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 VPAIX 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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