Is VWALX a Strong Bond Fund Right Now?
On the lookout for a Muni - Bonds fund? Starting with Vanguard High-Yield Tax-Exempt Admiral (VWALX) is one possibility. VWALX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.
Objective
VWALX 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
Vanguard Group is responsible for VWALX, and the company is based out of Malvern, PA. The Vanguard High-Yield Tax-Exempt Admiral made its debut in November of 2001 and VWALX has managed to accumulate roughly $14.84 billion in assets, as of the most recently available information. The fund's current manager, Mathew Kiselak, has been in charge of the fund since July of 2010.
Performance
Of course, investors look for strong performance in funds. VWALX has a 5-year annualized total return of 1.62%, and it sits in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 5.2%, 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 9.48%, the standard deviation of VWALX over the past three years is 7%. The fund's standard deviation over the past 5 years is 7.47% compared to the category average of 10.2%. 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, and is a metric that's a good way to judge how fixed income securities will respond in a shifting rate environment.
For those that believe interest rates will rise, this is an important factor to consider. VWALX has a modified duration of 7.94, which suggests that the fund will decline 7.94% 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 4.75% means that a $10,000 investment should result in a yearly payout of $475.
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. Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture.
VWALX carries a beta of 0.76, 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 1.22, 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, VWALX has 23.78% in high quality bonds rated at least "AA" or higher, while 52.22% 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, VWALX is a no load fund. It has an expense ratio of 0.09% compared to the category average of 0.78%. So, VWALX is actually cheaper than its peers from a cost perspective.
Investors should also note that the minimum initial investment for the product is $50,000 and that each subsequent investment needs to be at $1.
Fees charged by investment advisors have not been taken into consideration. Returns would be less if those were included.
Bottom Line
Overall, Vanguard High-Yield Tax-Exempt Admiral ( VWALX ) 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 the Muni - Bonds 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 VWALX 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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This article originally published on Zacks Investment Research (zacks.com).
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