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On the lookout for a Muni - Bonds fund? Starting with USAA Tax-Exempt Long Term Fund (USTEX - Free Report) is one possibility. USTEX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
Zacks categorizes USTEX as Muni - Bonds, which is a segment packed with options. Muni - Bonds funds invest in debt securities issued by states or local municipalities. These are generally used to finance construction of infrastructure, pay for schools, or other government functions. Some are backed by taxes (revenue bonds), while others are " general obligation " and may not be backed by a defined source. Investors usually appreciate the tax benefits that come with many municipal bonds, which are especially impressive for those in high tax brackets.
History of Fund/Manager
USTEX finds itself in the USAA Group family, based out of San Antonio, TX. The USAA Tax-Exempt Long Term Fund made its debut in March of 1982 and USTEX has managed to accumulate roughly $2.40 billion in assets, as of the most recently available information. The fund's current manager, John C. Bonnell, has been in charge of the fund since August of 2006.
Performance
Of course, investors look for strong performance in funds. This fund has delivered a 5-year annualized total return of 3.01%, 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 2.89%, 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 5.87%, the standard deviation of USTEX over the past three years is 2.82%. The fund's standard deviation over the past 5 years is 3.68% compared to the category average of 6.06%. 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.
For those that believe interest rates will rise, this is an important factor to consider. USTEX has a modified duration of 5.91, which suggests that the fund will decline 5.91% 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 4.68% means that a $10,000 investment should result in a yearly payout of $468.
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 0.83, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, USTEX has a positive alpha of 0.1, 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, USTEX has 35.22% in high quality bonds rated at least 'AA' or higher, while 54.94% 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, USTEX is a no load fund. It has an expense ratio of 0.46% compared to the category average of 0.87%. USTEX is actually cheaper than its peers when you consider factors like cost.
Investors should also note that the minimum initial investment for the product is $3,000 and that each subsequent investment needs to be at $50.
Bottom Line
Overall, USAA Tax-Exempt Long Term Fund has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.
Your research on the Muni - Bonds 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. For analysis of the rest of your portfolio, make sure to visit Zacks.com for our full suite of tools which will help you investigate all of your stocks and funds in one place.
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Is USTEX a Strong Bond Fund Right Now?
On the lookout for a Muni - Bonds fund? Starting with USAA Tax-Exempt Long Term Fund (USTEX - Free Report) is one possibility. USTEX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
Zacks categorizes USTEX as Muni - Bonds, which is a segment packed with options. Muni - Bonds funds invest in debt securities issued by states or local municipalities. These are generally used to finance construction of infrastructure, pay for schools, or other government functions. Some are backed by taxes (revenue bonds), while others are " general obligation " and may not be backed by a defined source. Investors usually appreciate the tax benefits that come with many municipal bonds, which are especially impressive for those in high tax brackets.
History of Fund/Manager
USTEX finds itself in the USAA Group family, based out of San Antonio, TX. The USAA Tax-Exempt Long Term Fund made its debut in March of 1982 and USTEX has managed to accumulate roughly $2.40 billion in assets, as of the most recently available information. The fund's current manager, John C. Bonnell, has been in charge of the fund since August of 2006.
Performance
Of course, investors look for strong performance in funds. This fund has delivered a 5-year annualized total return of 3.01%, 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 2.89%, 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 5.87%, the standard deviation of USTEX over the past three years is 2.82%. The fund's standard deviation over the past 5 years is 3.68% compared to the category average of 6.06%. 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.
For those that believe interest rates will rise, this is an important factor to consider. USTEX has a modified duration of 5.91, which suggests that the fund will decline 5.91% 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 4.68% means that a $10,000 investment should result in a yearly payout of $468.
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 0.83, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, USTEX has a positive alpha of 0.1, 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, USTEX has 35.22% in high quality bonds rated at least 'AA' or higher, while 54.94% 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, USTEX is a no load fund. It has an expense ratio of 0.46% compared to the category average of 0.87%. USTEX is actually cheaper than its peers when you consider factors like cost.
Investors should also note that the minimum initial investment for the product is $3,000 and that each subsequent investment needs to be at $50.
Bottom Line
Overall, USAA Tax-Exempt Long Term Fund has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.
Your research on the Muni - Bonds 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. For analysis of the rest of your portfolio, make sure to visit Zacks.com for our full suite of tools which will help you investigate all of your stocks and funds in one place.