Is VSLAX a Strong Bond Fund Right Now?

Any investors who are searching for High Yield - Bonds funds should take a look at Invesco Senior Loan A (VSLAX). While this fund is not tracked by the Zacks Mutual Fund Rank, we were able to examine other factors like performance, volatility, and cost.

Objective

VSLAX is part of the High Yield - Bonds section, which is a segment that boasts many possible options. Often referred to as "junk" bonds,High Yield - Bonds funds sit below investment grade, meaning they are at a high default risk compared to their investment grade peers. However, one advantage to junk bonds is that they generally pay out higher yields while posing similar interest rate risks to their investment grade counterparts.

History of Fund/Manager

Invesco is based in Kansas City, MO, and is the manager of VSLAX. The Invesco Senior Loan A made its debut in February of 2005 and VSLAX has managed to accumulate roughly $38.28 million in assets, as of the most recently available information. The fund's current manager is a team of investment professionals.

Performance

Of course, investors look for strong performance in funds. This fund in particular has delivered a 5-year annualized total return of 4.75%, 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. Compared to the category average of 9.97%, the standard deviation of VSLAX over the past three years is 3.47%. Over the past 5 years, the standard deviation of the fund is 4.09% compared to the category average of 11.16%. 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 those that believe interest rates will rise, this is an important factor to consider. VSLAX has a modified duration of 10.16, which suggests that the fund will decline 10.16% for every hundred-basis-point increase in interest rates.

Income

Income is often a big reason for purchasing a fixed income security, so it is 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 4.92% means that a $10,000 investment should result in a yearly payout of $492.

While a higher coupon is good for when you want a strong level of current income, it could present a reinvestment risk if rates are lower in the future when compared to the initial purchase date of the bond. Income is only one part of the bond picture, investors also need to consider risk relative to broad benchmarks.

VSLAX carries a beta of 0.08, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 1.08, 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, VSLAX has 47.89% in high quality bonds rated at least "AA" or higher, while 25.15% are of medium quality, with ratings of "A" to "BBB". The fund has an average quality of A, and focuses on high quality securities.

However, it is worth noting that 20% 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, VSLAX is a load fund. It has an expense ratio of 1.79% compared to the category average of 0.88%. Looking at the fund from a cost perspective, VSLAX is actually more expensive than its peers.

While the minimum initial investment for the product is $1,000, investors should also note that 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

Don't stop here for your research on High Yield - Bonds funds. We also have plenty more on our site in order to help you find the best possible fund for your portfolio. Make sure to check out www.zacks.com/funds/mutual-funds for more information about the world of funds, and feel free to compare VSLAX to its peers as well 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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This article originally published on Zacks Investment Research (zacks.com).

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