Is PONAX a Strong Bond Fund Right Now?
If you have been looking for Diversified Bonds funds, a place to start could be PIMCO Income A (PONAX). PONAX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.
Objective
We classify PONAX in the Diversified Bonds category, an area that is rife with potential choices.Diversified Bonds funds offer exposure to a wide variety of fixed income types, stretching across various issuers, credit levels, and maturities. Generally speaking, bond funds here will have sizable exposure to government debt, as well as modest holdings in the corporate bond market too.
History of Fund/Manager
PIMCO Funds is based in Newport Beach, CA, and is the manager of PONAX. The PIMCO Income A made its debut in April of 2007 and PONAX has managed to accumulate roughly $14.95 billion in assets, as of the most recently available information. A team of investment professionals is the fund's current manager.
Performance
Investors naturally seek funds with strong performance. This fund has delivered a 5-year annualized total return of 3.32%, 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 7.17%, 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. PONAX's standard deviation over the past three years is 4.93% compared to the category average of 9.94%. Looking at the past 5 years, the fund's standard deviation is 5.57% 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, 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. PONAX has a modified duration of 4.95, which suggests that the fund will decline 4.95% for every hundred-basis-point increase in interest rates.
Income
It is important to consider the fund's average coupon because income is often a big reason for purchasing a fixed income security. This metric calculates the fund's average payout in a given year. For example, this fund's average coupon of 5.03% means that a $10,000 investment should result in a yearly payout of $503.
A higher coupon is good for those seeking a strong level of current income, but it could also 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.
With a beta of 0.71, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, PONAX has a positive alpha of 2.34 , 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, PONAX has 73.8% in high quality bonds rated at least "AA" or higher. The fund has an average quality of AA, and focuses on high quality securities.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, PONAX is a load fund. It has an expense ratio of 0.90% compared to the category average of 0.93%. So, PONAX is actually cheaper than its peers from a cost perspective.
Investors need to be aware that with this product, the minimum initial investment is $1,000; each subsequent investment needs to 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, PIMCO Income A ( PONAX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, better downside risk, and lower fees, PIMCO Income A ( PONAX ) looks like a good potential choice for investors right now.
Your research on the Diversified Bonds segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. For analysis of the rest of your portfolio, make sure to visit Zacks.com for our full suite of tools which will help you investigate all of your stocks and funds in one place.
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This article originally published on Zacks Investment Research (zacks.com).
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