Is USATX a Strong Bond Fund Right Now?
There are plenty of choices in the Muni - Bonds category, but where should you start your research? Well, one fund that might be worth investigating is Victory Tax-Exempt IT (USATX). USATX has a Zacks Mutual Fund Rank of 2 (Buy), which is based on various forecasting factors like size, cost, and past performance.
Objective
USATX 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
Victory is based in Columbus, OH, and is the manager of USATX. The Victory Tax-Exempt IT made its debut in March of 1982 and USATX has managed to accumulate roughly $2.20 billion in assets, as of the most recently available information. The fund's current manager, Andrew Hattman, has been in charge of the fund since July of 2019.
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 1.16%, and is in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 3.79%, 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. Over the past three years, USATX's standard deviation comes in at 4.79%, compared to the category average of 8.81%. The standard deviation of the fund over the past 5 years is 5.27% compared to the category average of 10.24%. 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. USATX has a modified duration of 5.32, which suggests that the fund will decline 5.32% 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. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.54% means that a $10,000 investment should result in a yearly payout of $454.
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. Since income is just one part of the bond picture, investors need to consider risk relative to broad benchmarks.
With a beta of 0.57, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, USATX has a negative alpha of -0.29 , 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, USATX has 26.37% in high quality bonds rated at least "AA" or higher, while 62.94% are of medium quality, with ratings of "A" to "BBB". The fund has an average quality of A, 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, USATX is a no load fund. It has an expense ratio of 0.48% compared to the category average of 0.81%. So, USATX is actually cheaper than its peers from a cost perspective.
This fund requires a minimum initial investment of $3,000, and each subsequent investment should 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, Victory Tax-Exempt IT ( USATX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average 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 USATX in 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. Want to learn even more? We have a full suite of tools on stocks that you can use to find the best choices for your portfolio too, no matter what kind of investor you are.
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This article originally published on Zacks Investment Research (zacks.com).
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