Is ACTHX a Strong Bond Fund Right Now?
Any investors hoping to find a Muni - Bonds fund might consider looking past Invesco High Yield Municipals A (ACTHX). ACTHX holds a Zacks Mutual Fund Rank of 4 (Sell), which is based on various forecasting factors like size, cost, and past performance.
Objective
ACTHX 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
Invesco is based in Kansas City, MO, and is the manager of ACTHX. Invesco High Yield Municipals A made its debut in January of 1986, and since then, ACTHX has accumulated about $4.14 billion in assets, per the most up-to-date date available. The fund's current manager is a team of investment professionals.
Performance
Investors naturally seek funds with strong performance. This fund has delivered a 5-year annualized total return of 0.69%, and is in the middle third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 1.66%, 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. Over the past three years, ACTHX's standard deviation comes in at 9.31%, compared to the category average of 12.76%. Looking at the past 5 years, the fund's standard deviation is 8.45% compared to the category average of 12.2%. 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, so when judging how fixed income securities will respond in a shifting rate environment, it is an excellent figure to look at.
For investors who think interest rates will rise, this is an important factor to consider. ACTHX has a modified duration of 9.65, which suggests that the fund will decline 9.65% 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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 3.02% means that a $10,000 investment should result in a yearly payout of $302.
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. Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture.
This fund has a beta of 0.97, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, ACTHX has a positive alpha of 1.27, 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, ACTHX has 17.2% in medium quality bonds, with ratings of "A" to "BBB". The fund has an average quality of BBB, and focuses on medium quality securities.However, it is worth noting that 50% of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.
Expenses
Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, ACTHX is a load fund. It has an expense ratio of 1.38% compared to the category average of 0.93%. Looking at the fund from a cost perspective, ACTHX is actually more expensive than its peers.
This fund requires a minimum initial investment of $1,000, and each subsequent investment should be at least $50.
Fees charged by investment advisors have not been taken into consideration. Returns would be less if those were included.
Bottom Line
Overall, Invesco High Yield Municipals A ( ACTHX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and higher fees, this fund looks like a somewhat weak choice for investors right now.
This could just be the start of your research on ACTHX in the Muni - Bonds 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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