There are plenty of choices in the Investment Grade Bond - Short category, but where should you start your research? Well, one fund that might be worth investigating is Vanguard Short-Term Investor Growth Income Investor (VFSTX). VFSTX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
We note that VFSTX is an Investment Grade Bond - Short option, which is an area loaded with different options. Investment Grade Bond - Short funds focus on the short end of the curve, generally with bonds that mature in less than two years. Fixed income instruments with this maturity level usually have low duration risk, while they also pay out small yields, at least when compared to their longer-dated peers. 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 VFSTX. Since Vanguard Short-Term Investor Growth Income Investor made its debut in October of 1982, VFSTX has garnered more than $8.18 billion in assets. The fund's current manager, Samuel C. Martinez, has been in charge of the fund since April of 2018.
Obviously, what investors are looking for in these funds is strong performance relative to their peers. VFSTX has a 5-year annualized total return of 2.44% and is in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 3.03%, 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. Compared to the category average of 6.52%, the standard deviation of VFSTX over the past three years is 1.2%. The fund's standard deviation over the past 5 years is 1.25% compared to the category average of 6.83%. This makes the fund less volatile than its peers over the past half-decade.
With a beta of 0.37, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, VFSTX has a positive alpha of 0.62, which measures performance on a risk-adjusted basis.
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, VFSTX has 38.4% in high quality bonds rated at least 'AA' or higher, while 59.83% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of A, and focuses on high quality securities.
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, VFSTX is a no load fund. It has an expense ratio of 0.20% compared to the category average of 0.77%. So, VFSTX is actually cheaper than its peers from a cost perspective.
Investors need to be aware that with this product, the minimum initial investment is $3,000; each subsequent investment needs to be at least $1.
Overall, Vanguard Short-Term Investor Growth Income Investor ( VFSTX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, better downside risk, and lower fees, Vanguard Short-Term Investor Growth Income Investor ( VFSTX ) looks like a good potential choice for investors right now.
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