Is VFICX a Strong Bond Fund Right Now?

Having trouble finding an Investment Grade Bond - Intermediate fund? Vanguard Intermediate-Term Investment-Grade Investor (VFICX) is a potential starting point. VFICX holds a Zacks Mutual Fund Rank of 2 (Buy), 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

VFICX is a part of the Vanguard Group family of funds, a company based out of Malvern, PA. Vanguard Intermediate-Term Investment-Grade Investor debuted in November of 1993. Since then, VFICX has accumulated assets of about $2.12 billion, according to the most recently available information. Samuel C. Martinez is the fund's current manager and has held that role since April of 2018.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. VFICX has a 5-year annualized total return of 2.59% and is in the middle 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 1.68%, 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. The standard deviation of VFICX over the past three years is 2.98% compared to the category average of 5.84%. Looking at the past 5 years, the fund's standard deviation is 3.03% compared to the category average of 5.74%. 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 those that believe interest rates will rise, this is an important factor to consider. VFICX has a modified duration of 5.6, which suggests that the fund will decline 5.6% 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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 2.9% means that a $10,000 investment should result in a yearly payout of $290.

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. With a beta of 1.05, this fund is more 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 36.8% in high quality bonds rated at least 'AA' or higher, while 60.3% 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

As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital 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 0.84%. VFICX is actually cheaper than its peers when you consider factors like cost.

This fund requires a minimum initial investment of $3,000, and each subsequent investment should be at least $1.

Bottom Line

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

For additional information on the Investment Grade Bond - Intermediate area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into VFICX too 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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