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Is VFICX a Strong Bond Fund Right Now?

Zacks Equity Research

If you have been looking for Investment Grade Bond - Intermediate fund category, a potential starting could be Vanguard Intermediate-Term Investment-Grade Investor (VFICX). VFICX has a Zacks Mutual Fund Rank of 3 (Hold), which is based on nine forecasting factors like size, cost, and past performance.

Objective

VFICX is one of many Investment Grade Bond - Intermediate funds to pick from. Investment Grade Bond - Intermediate funds focus on the middle part of the curve, generally with bonds that usually mature in more than three years but less than 15 years. Fixed income instruments with this maturity level usually have medium duration risk, but they also compensate investors with a modest yield, at least when compared to their short maturity counterparts. Additionally, the focus on investment grade will make funds here safer, but yields will be lower than in the junk bond category.

History of Fund/Manager

Vanguard Group is based in Malvern, PA, and is the manager of VFICX. Vanguard Intermediate-Term Investment-Grade Investor debuted in November of 1993. Since then, VFICX has accumulated assets of about $2.31 billion, according to the most recently available information. The fund is currently managed by Samuel C. Martinez who has been in charge of the fund since April of 2018.

Performance

Of course, investors look for strong performance in funds. VFICX has a 5-year annualized total return of 3.73% 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 2.98%, which places it in the middle 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, VFICX's standard deviation comes in at 3.33%, compared to the category average of 6.38%. Looking at the past 5 years, the fund's standard deviation is 3.23% compared to the category average of 6.49%. 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.

If you believe interest rates will rise, this is an important factor to look at. VFICX has a modified duration of 5.39, which suggests that the fund will decline 5.39% 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 3.6% means that a $10,000 investment should result in a yearly payout of $360.

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.

Because income is only one part of the bond picture, investors should also consider risk relative to broad benchmarks. This fund has a beta of 0.98, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, VFICX has a positive alpha of 0.33, 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, VFICX has 37.85% in high quality bonds rated at least 'AA' or higher, while 58.89% 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, VFICX is a no load fund. It has an expense ratio of 0.20% compared to the category average of 0.83%. VFICX is actually cheaper than its peers when you consider factors like cost.

While the minimum initial investment for the product is $3,000, investors should also note that each subsequent investment needs to be at least $1.

Bottom Line

Overall, Vanguard Intermediate-Term Investment-Grade Investor ( VFICX ) has a neutral Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, Vanguard Intermediate-Term Investment-Grade Investor ( VFICX ) looks like a somewhat average choice for investors right now.

Don't stop here for your research on Investment Grade Bond - Intermediate 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 VFICX to its peers as well for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.


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