Is SDSYX a Strong Bond Fund Right Now?

Having trouble finding a Investment Grade Bond - Intermediate fund? Western Asset Global Strategy Income I (SDSYX) is a possible starting point. SDSYX carries a Zacks Mutual Fund Rank of 3 (Hold), which is based on various forecasting factors like size, cost, and past performance.

Objective

We classify SDSYX 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

SDSYX is a part of the Franklin family of funds, a company based out of San Mateo, CA. Since Western Asset Global Strategy Income I made its debut in October of 1995, SDSYX has garnered more than $43.86 million in assets. The fund's current manager is a team of investment professionals.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund in particular has delivered a 5-year annualized total return of 2.6%, and it sits in the middle 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 6.91%, 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 SDSYX over the past three years is 4.97% compared to the category average of 9.56%. Looking at the past 5 years, the fund's standard deviation is 5.91% compared to the category average of 11.19%. 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.

If you believe interest rates will rise, this is an important factor to look at. SDSYX has a modified duration of 3.85, which suggests that the fund will decline 3.85% 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. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 7.08% means that a $10,000 investment should result in a yearly payout of $708.

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. Since income is just one part of the bond picture, investors need to consider risk relative to broad benchmarks.

With a beta of 0.66, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, SDSYX has a positive alpha of 1.62 , 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, SDSYX has 24.42% in medium quality bonds, with ratings of "A" to "BBB". The fund's junk bond component-bonds rated "BB" or below-is at 55.27%, giving SDSYX an average quality of BBB. This means that it focuses on medium 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, SDSYX is a no load fund. It has an expense ratio of 0.68% compared to the category average of 0.93%. From a cost perspective, SDSYX is actually cheaper than its peers.

Investors should also note that the minimum initial investment for the product is $1.00 million and that each subsequent investment has no minimum amount.

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

Bottom Line

Overall, Western Asset Global Strategy Income I ( SDSYX ) has a neutral Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, better downside risk, and lower fees, Western Asset Global Strategy Income I ( SDSYX ) looks like a somewhat average 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 SDSYX too for additional information. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.

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