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Is VWEHX a Strong Bond Fund Right Now?

Zacks Equity Research

If you have been looking for High Yield - Bonds funds, a place to start could be Vanguard High-Yield Corporate Investor (VWEHX). VWEHX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

VWEHX is classified in the High Yield - Bonds segment by Zacks, an area full of investment possibilities. High Yield - Bonds funds come in below investment grade, and are referred to as " junk " bonds for this reason. Compared to their investment grade peers, these funds are at a higher default risk, but typically pay out higher yields while posing similar interest rate risks.

History of Fund/Manager

Vanguard Group is based in Malvern, PA, and is the manager of VWEHX. Since Vanguard High-Yield Corporate Investor made its debut in December of 1978, VWEHX has garnered more than $3.90 billion in assets. Michael L. Hong is the fund's current manager and has held that role since February of 2008.

Performance

Of course, investors look for strong performance in funds. This fund carries a 5-year annualized total return of 5.03%, and it sits 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 6.03%, 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 VWEHX over the past three years is 4.37% compared to the category average of 6.67%. Looking at the past 5 years, the fund's standard deviation is 4.74% compared to the category average of 7.17%. This makes the fund less volatile than its peers over the past half-decade.

Bond Duration

Modified duration is a measure of a specific bond's interest rate sensitivity, and is an excellent way to judge how fixed income securities will respond to a shifting rate environment.

For those that believe interest rates will rise, this is an important factor to consider. VWEHX has a modified duration of 4.41, which suggests that the fund will decline 4.41% 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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5.87% means that a $10,000 investment should result in a yearly payout of $587.

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.

Since income is just one part of the bond picture, investors need to consider risk relative to broad benchmarks. With a beta of 0.3, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, VWEHX has a positive alpha of 3.44, 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, VWEHX is a no load fund. It has an expense ratio of 0.23% compared to the category average of 1.02%. Looking at the fund from a cost perspective, VWEHX is actually cheaper than its peers.

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.

Bottom Line

Overall, Vanguard High-Yield Corporate Investor ( VWEHX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, Vanguard High-Yield Corporate Investor ( VWEHX ) looks like a good potential choice for investors right now.

For additional information on the High Yield - Bonds 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 VWEHX 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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