U.S. Markets closed

Is RPSIX a Strong Bond Fund Right Now?

Zacks Equity Research
Canadian Solar (CSIQ) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Having trouble finding a Diversified Bonds fund? T. Rowe Price Spectrum Income (RPSIX) is a potential starting point. RPSIX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

The world of Diversified Bonds funds is an area filled with options, such as RPSIX. Investors looking for exposure to a variety of fixed income types that stretch across issuers, maturities, and credit levels will find a good fit with Diversified Bonds funds. Typically, these funds have a solid amount of exposure to government debt, as well as modest holdings in the corporate bond market.

History of Fund/Manager

RPSIX finds itself in the T. Rowe Price family, based out of Baltimore, MD. Since T. Rowe Price Spectrum Income made its debut in June of 1990, RPSIX has garnered more than $3.27 billion in assets. The fund is currently managed by Charles M. Shriver who has been in charge of the fund since May of 2011.

Performance

Of course, investors look for strong performance in funds. This fund carries a 5-year annualized total return of 3.25%, and is 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 4.4%, which places it in the top third during this time-frame.

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, RPSIX's standard deviation comes in at 3.18%, compared to the category average of -18.33%. Over the past 5 years, the standard deviation of the fund is 3.54% compared to the category average of -9.16%. This makes the fund more 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. RPSIX has a modified duration of 5.44, which suggests that the fund will decline 5.44% for every hundred-basis-point increase in interest rates.

Income

We must remember to consider the fund's average coupon, as income is traditionally a big reason for purchasing a fixed income security. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 4.6% means that a $10,000 investment should result in a yearly payout of $460.

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.

Income is only one part of the bond picture, investors also need to consider risk relative to broad benchmarks. With a beta of 0.64, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, RPSIX has a positive alpha of 1.28, 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, RPSIX has 37.33% in high quality bonds rated at least 'AA' or higher, while 28.75% are of medium quality, with ratings of 'A' to 'BBB'. The fund's junk bond component-bonds rated 'BB' or below-is at 32.55%, giving RPSIX an average quality of A. This means that it 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, RPSIX is a no load fund. It has an expense ratio of 0.77% compared to the category average of 0.08%. Looking at the fund from a cost perspective, RPSIX is actually more expensive than its peers.

This fund requires a minimum initial investment of $2,500, and each subsequent investment should be at least $100.

Bottom Line

Overall, T. Rowe Price Spectrum Income ( RPSIX ) has a high Zacks Mutual Fund rank, strong performance, worse downside risk, and higher fees compared to its peers.

This could just be the start of your research on RPSIXin the Diversified 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. And don't forget, Zacks has all of your needs covered on the equity side too! Make sure to check out Zacks.com for more information on our screening capabilities, Rank, and all our articles as well.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Get Your Free (RPSIX): Fund Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research