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Is FATRX a Strong Bond Fund Right Now?

Zacks Equity Research

Have you been searching for an Investment Grade - Bonds: Misc fund? You might want to begin with Frost Total Return Bond Investor (FATRX). FATRX bears a Zacks Mutual Fund Rank of 3 (Hold), which is based on nine forecasting factors like size, cost, and past performance.


We classify FATRX in the Investment Grade - Bonds: Misc, as area rife with many potential choices. Investment Grade - Bonds: Misc funds are not focused on one part of the curve and often hold a variety of investment grade credit levels. However, this means that funds in this category may not be directly comparable, and duration risk will depend on a given fund's profile. Also, these funds tend to be safer because of their focus on investment grade, but yields will be lower than could be found in the junk bond category.

History of Fund/Manager

Frost Funds is based in San Antonio, Tx, and is the manager of FATRX. Since Frost Total Return Bond Investor made its debut in July of 2008, FATRX has garnered more than $544.49 million in assets. The fund is currently managed by Jeffery Elswick who has been in charge of the fund since July of 2008.


Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund has delivered a 5-year annualized total return of 3%, 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 3.47%, which places it in the top third during this time-frame.

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.

If you believe interest rates will rise, this is an important factor to look at. FATRX has a modified duration of 3.15, which suggests that the fund will decline 3.15% for every hundred-basis-point increase in interest rates.


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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.1% means that a $10,000 investment should result in a yearly payout of $410.

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. With a beta of 0.41, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, FATRX has a positive alpha of 1.07, which measures performance on a risk-adjusted basis.


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, FATRX has 61.51% in high quality bonds rated at least 'AA' or higher, while 20.62% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of AA, and focuses on high quality securities.


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, FATRX is a no load fund. It has an expense ratio of 0.72% compared to the category average of 0.08%. FATRX is actually more expensive than its peers when you consider factors like cost.

This fund requires a minimum initial investment of $2,500, and each subsequent investment should be at least $500.

Bottom Line

With a rank of 'hold' we aren't getting a good signal one way or another on FATRX. That is why it might be a good idea to consider other items, such as the fund's expense ratio of 0.72%, and how this compares to other potential options being considered for investment. If cheaper, it might make a decent choice, but a more expensive fund might be worth avoiding. Just make sure to pay attention to its rank in case it shifts in the near future.

This could just be the start of your research on FATRXin the Investment Grade - Bonds: Misc 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. 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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