Is VFIIX a Strong Bond Fund Right Now?

There are plenty of choices in the Government Mortgage - Intermediate category, but where should you start your research? Well, one fund that might be worth investigating is Vanguard GNMA Investor (VFIIX). VFIIX carries a Zacks Mutual Fund Rank of 2 (Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

We classify VFIIX in the Government Mortgage - Intermediate category, an area full of potential choices. Government Mortgage - Intermediate funds focus on the mortgage-backed securities (MBS) market, which packages mortgages together and then sells off the pooled securities as a MBS. Honing in on MBS' that have at least three years to maturity but less than 10, this fund category presents a medium risk and yield profile.

History of Fund/Manager

VFIIX finds itself in the Vanguard Group family, based out of Malvern, PA. The Vanguard GNMA Investor made its debut in June of 1980 and VFIIX has managed to accumulate roughly $2.02 billion in assets, as of the most recently available information. The fund's current manager, Brian Conroy, has been in charge of the fund since May of 2019.

Performance

Of course, investors look for strong performance in funds. This fund in particular has delivered a 5-year annualized total return of -0.19%, 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 2.74%, 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. Compared to the category average of 10.45%, the standard deviation of VFIIX over the past three years is 7.37%. The fund's standard deviation over the past 5 years is 6.36% compared to the category average of 9.63%. 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. VFIIX has a modified duration of 5.72, which suggests that the fund will decline 5.72% for every hundred-basis-point increase in interest rates.

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, VFIIX is a no load fund. It has an expense ratio of 0.21% compared to the category average of 0.75%. VFIIX is actually cheaper than its peers when you consider factors like cost.

This fund requires a minimum initial investment of $3,000, and each subsequent investment should be at least $1.

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

Bottom Line

Overall, Vanguard GNMA Investor ( VFIIX ) 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.

For additional information on this product, or to compare it to other mutual funds in the Government Mortgage - Intermediate, make sure to go to www.zacks.com/funds/mutual-funds 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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