Is VWAHX a Strong Bond Fund Right Now?

Any investors hoping to find a Muni - Bonds fund could think about starting with Vanguard High-Yield Tax-Exempt Investor (VWAHX). VWAHX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

VWAHX 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

Vanguard Group is based in Malvern, PA, and is the manager of VWAHX. The Vanguard High-Yield Tax-Exempt Investor made its debut in December of 1978 and VWAHX has managed to accumulate roughly $2.04 billion in assets, as of the most recently available information. Mathew Kiselak is the fund's current manager and has held that role since July of 2010.

Performance

Of course, investors look for strong performance in funds. This fund in particular has delivered a 5-year annualized total return of 1.29%, and is in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 4.92%, 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 8.72%, the standard deviation of VWAHX over the past three years is 6.71%. The fund's standard deviation over the past 5 years is 7.5% compared to the category average of 10.01%. 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. VWAHX has a modified duration of 8.51, which suggests that the fund will decline 8.51% 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 takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.88% means that a $10,000 investment should result in a yearly payout of $488.

For those seeking a strong level of current income, a higher coupon is typically good news. However, it could pose a reinvestment risk 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 0.84, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, VWAHX has a positive alpha of 0.85 , 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, VWAHX has 27.23% in high quality bonds rated at least "AA" or higher, while 47.22% 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, VWAHX is a no load fund. It has an expense ratio of 0.17% compared to the category average of 0.76%. VWAHX is actually cheaper than its peers when you consider factors like cost.

This fund requires a minimum initial investment of $3,000, and each subsequent investment should 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 High-Yield Tax-Exempt Investor ( VWAHX ) 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.

Want even more information about VWAHX? Then go over to Zacks.com and check out our mutual fund comparison tool, and all of the other great features that we have to help you with your mutual fund analysis 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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