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Is USHYX a Strong Bond Fund Right Now?

Zacks Equity Research
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Have you been searching for a High Yield - Bonds fund? You might want to begin with USAA High Income (USHYX). USHYX possesses a Zacks Mutual Fund Rank of 3 (Hold), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We note that USHYX is a High Yield - Bonds option, which is an area loaded with different investment choices. High Yield - Bonds funds are often known as " junk " bonds since they are below investment grade. This means they are at an elevated risk of default, at least when compared to their investment grade peers. On the plus side, junk bonds generally pay out higher yields, all while posing similar interest rate risks as we see with their investment grade counterparts.

History of Fund/Manager

USAA Group is based in San Antonio, TX, and is the manager of USHYX. The USAA High Income made its debut in August of 1999 and USHYX has managed to accumulate roughly $1.16 billion in assets, as of the most recently available information. A team of investment professionals is the fund's current manager.

Performance

Of course, investors look for strong performance in funds. USHYX has a 5-year annualized total return of 3.79% 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 7.53%, 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, USHYX's standard deviation comes in at 4.51%, compared to the category average of 7.32%. Looking at the past 5 years, the fund's standard deviation is 5.52% compared to the category average of 7.78%. 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. USHYX has a modified duration of 3.6, which suggests that the fund will decline 3.6% for every hundred-basis-point increase in interest rates.

Income

It is important to consider the fund's average coupon because income is often 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 6.44% means that a $10,000 investment should result in a yearly payout of $644.

For those seeking a strong level of current income, a higher coupon is typically good news. However, it could pose 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. USHYX carries a beta of 0.29, 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 2.57, which measures performance on a risk-adjusted basis.

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, USHYX is a no load fund. It has an expense ratio of 0.88% compared to the category average of 1.02%. So, USHYX is actually cheaper than its peers from a cost perspective.

Investors should also note that the minimum initial investment for the product is $3,000 and that each subsequent investment needs to be at $50.

Bottom Line

Overall, USAA High Income ( USHYX ) has a neutral Zacks Mutual Fund rank, strong performance, average downside risk, and lower fees compared to its peers.

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


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