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Is VFICX a Strong Bond Fund Right Now?

Zacks Equity Research

Investment Grade Bond - Intermediate fund seekers should consider taking a look at Vanguard Intermediate-Term Investment-Grade Investor (VFICX). VFICX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify VFICX in the Investment Grade Bond - Intermediate category, an area rife with potential choices. Investment Grade Bond - Intermediate funds target the middle part of the curve, typically by investing in bonds that mature in more than three years but less than 15 years. At these maturity levels, fixed income instruments have medium duration risk--but they compensate investors with a respectable yield compared to shorter maturity options. Finally, a focus on investment grade ensures that these funds are 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. The Vanguard Intermediate-Term Investment-Grade Investor made its debut in November of 1993 and VFICX has managed to accumulate roughly $2.18 billion in assets, as of the most recently available information. The fund's current manager, Samuel C. Martinez, has been in charge of the fund since April of 2018.

Performance

Of course, investors look for strong performance in funds. This fund has delivered a 5-year annualized total return of 3.04%, and it sits 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 2.26%, 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. VFICX's standard deviation over the past three years is 3.11% compared to the category average of 5.93%. The fund's standard deviation over the past 5 years is 3.1% compared to the category average of 6.17%. 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

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. A fund's average coupon is simply its average payout 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.

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.

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 1, meaning that it is volatile than a broad market index of fixed income securities. Taking this into account, VFICX has a positive alpha of 0.24, 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

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, VFICX is a no load fund. It has an expense ratio of 0.20% compared to the category average of 0.82%. So, VFICX 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 $1.

Bottom Line

Overall, Vanguard Intermediate-Term Investment-Grade Investor ( VFICX ) has a high Zacks Mutual Fund rank, strong performance, average downside risk, and lower fees compared to its peers.

Your research on the Investment Grade Bond - Intermediate segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer 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.


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