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Is VWALX a Strong Bond Fund Right Now?

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If you have been looking for Muni - Bonds funds, a place to start could be Vanguard High-Yield Tax-Exempt Admiral (VWALX - Free Report) . VWALX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

VWALX is one of many Muni - Bonds funds to choose from. Muni - Bonds funds invest in debt securities issued by states and local municipalities, which are typically used to pay for infrastructure construction, schools, and other government functions. These securities can be backed by taxes (revenue bonds), but others are known as " general obligation " and are not necessarily backed by a defined source. These bonds are especially attractive because of their inherent tax benefits.

History of Fund/Manager

Vanguard Group is responsible for VWALX, and the company is based out of Malvern, PA. Since Vanguard High-Yield Tax-Exempt Admiral made its debut in November of 2001, VWALX has garnered more than $11.03 billion in assets. The fund's current manager, Mathew M. Kiselak, has been in charge of the fund since July of 2010.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund has delivered a 5-year annualized total return of 4.77%, and is in the top 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 3.27%, 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. The standard deviation of VWALX over the past three years is 3.85% compared to the category average of 5.77%. The fund's standard deviation over the past 5 years is 3.55% compared to the category average of 5.81%. 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.

If you believe interest rates will rise, this is an important factor to look at. VWALX has a modified duration of 6.84, which suggests that the fund will decline 6.84% 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. This metric calculates the fund's average payout in a given year. For example, this fund's average coupon of 5.06% means that a $10,000 investment should result in a yearly payout of $506.

A higher coupon is good for those seeking a strong level of current income, but it could also 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 1.2, meaning that it is more volatile than a broad market index of fixed income securities. Taking this into account, VWALX has a positive alpha of 0.84, 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, VWALX has 22.4% in high quality bonds rated at least 'AA' or higher, while 61.04% 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, VWALX is a no load fund. It has an expense ratio of 0.09% compared to the category average of 0.86%. So, VWALX is actually cheaper than its peers from a cost perspective.

While the minimum initial investment for the product is $50,000, investors should also note that each subsequent investment needs to be at least $1.

Bottom Line

Overall, Vanguard High-Yield Tax-Exempt Admiral ( VWALX ) 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.

For additional information on this product, or to compare it to other mutual funds in the Muni - Bonds, make sure to go to www.zacks.com/funds/mutual-funds 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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