Is MBDFX a Strong Bond Fund Right Now?

Having trouble finding a Investment Grade Bond - Intermediate fund? Well, AMG GW&K Core Bond I (MBDFX) would not be a good potential starting point right now. MBDFX has a Zacks Mutual Fund Rank of 5 (Strong Sell), which is based on various forecasting factors like size, cost, and past performance.

Objective

We classify MBDFX in the Investment Grade Bond - Intermediate category, an area rife with potential choices. Investment Grade Bond - Intermediate funds target the middle part of the curve, typically by investing in bonds that mature in more than three years but less than 15 years. At these maturity levels, fixed income instruments have medium duration risk--but they compensate investors with a respectable yield compared to shorter maturity options. Finally, a focus on investment grade ensures that these funds are safer, but yields will be lower than in the junk bond category.

History of Fund/Manager

AMG Funds is based in Greenwich, CT, and is the manager of MBDFX. AMG GW&K Core Bond I made its debut in April of 1993, and since then, MBDFX has accumulated about $109.85 million in assets, per the most up-to-date date available. The fund's current manager, Mary Kane, has been in charge of the fund since February of 2015.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund has delivered a 5-year annualized total return of -0.32%, and is in the bottom third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 5.79%, 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. MBDFX's standard deviation over the past three years is 6.76% compared to the category average of 10.01%. The fund's standard deviation over the past 5 years is 6.62% compared to the category average of 10.84%. 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. MBDFX has a modified duration of 6.03, which suggests that the fund will decline 6.03% 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 4.19% means that a $10,000 investment should result in a yearly payout of $419.

While a higher coupon is good for when you want a strong level of current income, it could present 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.

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, MBDFX is a no load fund. It has an expense ratio of 0.56% compared to the category average of 0.79%. From a cost perspective, MBDFX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $100,000; each subsequent investment needs to be at least $100.

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

Bottom Line

Overall, even with its comparatively weak performance, average downside risk, and lower fees, AMG GW&K Core Bond I ( MBDFX ) has a low Zacks Mutual Fund rank, and therefore looks a somewhat weak choice for investors right now.

For additional information on the Investment Grade Bond - Intermediate 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 MBDFX too 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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This article originally published on Zacks Investment Research (zacks.com).

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