Is PRFHX a Strong Bond Fund Right Now?

Having trouble finding a Muni - Bonds fund? T. Rowe Price Tax Free High Yield Retail (PRFHX) is a potential starting point. PRFHX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

PRFHX 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

T. Rowe Price is based in Baltimore, MD, and is the manager of PRFHX. The T. Rowe Price Tax Free High Yield Retail made its debut in March of 1985 and PRFHX has managed to accumulate roughly $1.46 million in assets, as of the most recently available information. James M. Murphy is the fund's current manager and has held that role since January of 2001.

Performance

Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 2.98%, and it sits 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 2.14%, 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. The standard deviation of PRFHX over the past three years is 8.59% compared to the category average of 12.33%. The standard deviation of the fund over the past 5 years is 7.68% compared to the category average of 12.96%. This makes the fund less volatile than its peers over the past half-decade.

This fund has a beta of 0.8, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, PRFHX has a positive alpha of 2.11, 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, PRFHX has 29.71% in medium quality bonds, with ratings of 'A' to 'BBB'. The fund's junk bond component-bonds rated 'BB' or below-is at 18.12%, giving PRFHX an average quality of BBB. This means that it focuses on medium quality securities.

However, it is worth noting that 43 % 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, PRFHX is a no load fund. It has an expense ratio of 0.67% compared to the category average of 0.91%. So, PRFHX is actually cheaper than its peers from a cost perspective.

Investors should also note that the minimum initial investment for the product is $2,500 and that each subsequent investment needs to be at $100

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

Bottom Line

Overall, T. Rowe Price Tax Free High Yield Retail ( PRFHX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, better downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

This could just be the start of your research on PRFHXin 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. 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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