Is CAYAX a Strong Bond Fund Right Now?
If you have been looking for Muni - Bonds funds, a place to start could be American Century CA High Yield Municipals A (CAYAX). CAYAX possesses a Zacks Mutual Fund Rank of 2 (Buy), which is based on various forecasting factors like size, cost, and past performance.
Objective
CAYAX 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
CAYAX is a part of the American Century family of funds, a company based out of Kansas City, MO. The American Century CA High Yield Municipals A made its debut in January of 2003 and CAYAX has managed to accumulate roughly $57.08 million in assets, as of the most recently available information. The fund is currently managed by Joseph Gotelli who has been in charge of the fund since January of 2012.
Performance
Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 0.39%, 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 3.54%, 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 9.98%, the standard deviation of CAYAX over the past three years is 7%. Looking at the past 5 years, the fund's standard deviation is 7.58% compared to the category average of 11.62%. 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, and is a metric that's a good way to judge how fixed income securities will respond in a shifting rate environment.
For investors who think interest rates will rise, this is an important factor to consider. CAYAX has a modified duration of 8.38, which suggests that the fund will decline 8.38% 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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.72% means that a $10,000 investment should result in a yearly payout of $472.
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. Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture.
With a beta of 0.83, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, CAYAX has a positive alpha of 0.11 , 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, CAYAX has 26.68% in high quality bonds rated at least "AA" or higher, while 25.28% are of medium quality, 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 45% of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.
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, CAYAX is a load fund. It has an expense ratio of 0.74% compared to the category average of 0.88%. CAYAX is actually cheaper than its peers when you consider factors like cost.
Investors should also note that the minimum initial investment for the product is $2,500 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, American Century CA High Yield Municipals A ( CAYAX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, American Century CA High Yield Municipals A ( CAYAX ) looks like a good potential choice for investors right now.
For additional information on this product, or to compare it to other mutual funds in the Muni - Bonds, make sure to go to www.zacks.com/funds/mutual-funds for additional information. And don't forget, Zacks has all of your needs covered on the equity side too! Make sure to check out Zacks.com for more information on our screening capabilities, Rank, and all our articles as well.
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This article originally published on Zacks Investment Research (zacks.com).
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