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Diversified Bonds fund seekers should not consider taking a look at Putnam Diversified Income Y (PDVYX - Free Report) at this time. PDVYX possesses a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.
Objective
The world of Diversified Bonds funds is an area filled with options, such as PDVYX. Investors looking for exposure to a variety of fixed income types that stretch across issuers, maturities, and credit levels will find a good fit with Diversified Bonds funds. Typically, these funds have a solid amount of exposure to government debt, as well as modest holdings in the corporate bond market.
History of Fund/Manager
Putnam Funds is based in Canton, MA, and is the manager of PDVYX. The Putnam Diversified Income Y made its debut in October of 1998 and PDVYX has managed to accumulate roughly $2.39 billion in assets, as of the most recently available information. The fund's current manager is a team of investment professionals.
Performance
Obviously, what investors are looking for in these funds is strong performance relative to their peers. PDVYX has a 5-year annualized total return of 2.61% and it sits in the bottom third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 6.41%, 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. PDVYX's standard deviation over the past three years is 3.59% compared to the category average of 8.03%. The fund's standard deviation over the past 5 years is 5.03% compared to the category average of 8.38%. 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.
If you believe interest rates will rise, this is an important factor to look at. PDVYX has a modified duration of -0.4, which suggests that the fund will decline -0.4% 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. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5% means that a $10,000 investment should result in a yearly payout of $500.
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.
Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. This fund has a beta of -0.33, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, PDVYX has a positive alpha of 3.2, 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, PDVYX has 34.94% in high quality bonds rated at least 'AA' or higher, while its junk bond component-bonds rated 'BB' or below-is at 48.17%. This means that 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, PDVYX is a no load fund. It has an expense ratio of 0.36% compared to the category average of 0.90%. PDVYX 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 $0 and that each subsequent investment has no minimum amount.
Bottom Line
Overall, Putnam Diversified Income Y ( PDVYX ) has a low Zacks Mutual Fund rank, similar performance, average downside risk, and lower fees compared to its peers.
For additional information on this product, or to compare it to other mutual funds in the Diversified Bonds, make sure to go to www.zacks.com/funds/mutual-funds 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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Is PDVYX a Strong Bond Fund Right Now?
Diversified Bonds fund seekers should not consider taking a look at Putnam Diversified Income Y (PDVYX - Free Report) at this time. PDVYX possesses a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.
Objective
The world of Diversified Bonds funds is an area filled with options, such as PDVYX. Investors looking for exposure to a variety of fixed income types that stretch across issuers, maturities, and credit levels will find a good fit with Diversified Bonds funds. Typically, these funds have a solid amount of exposure to government debt, as well as modest holdings in the corporate bond market.
History of Fund/Manager
Putnam Funds is based in Canton, MA, and is the manager of PDVYX. The Putnam Diversified Income Y made its debut in October of 1998 and PDVYX has managed to accumulate roughly $2.39 billion in assets, as of the most recently available information. The fund's current manager is a team of investment professionals.
Performance
Obviously, what investors are looking for in these funds is strong performance relative to their peers. PDVYX has a 5-year annualized total return of 2.61% and it sits in the bottom third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 6.41%, 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. PDVYX's standard deviation over the past three years is 3.59% compared to the category average of 8.03%. The fund's standard deviation over the past 5 years is 5.03% compared to the category average of 8.38%. 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.
If you believe interest rates will rise, this is an important factor to look at. PDVYX has a modified duration of -0.4, which suggests that the fund will decline -0.4% 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. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5% means that a $10,000 investment should result in a yearly payout of $500.
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.
Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. This fund has a beta of -0.33, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, PDVYX has a positive alpha of 3.2, 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, PDVYX has 34.94% in high quality bonds rated at least 'AA' or higher, while its junk bond component-bonds rated 'BB' or below-is at 48.17%. This means that 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, PDVYX is a no load fund. It has an expense ratio of 0.36% compared to the category average of 0.90%. PDVYX 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 $0 and that each subsequent investment has no minimum amount.
Bottom Line
Overall, Putnam Diversified Income Y ( PDVYX ) has a low Zacks Mutual Fund rank, similar performance, average downside risk, and lower fees compared to its peers.
For additional information on this product, or to compare it to other mutual funds in the Diversified Bonds, make sure to go to www.zacks.com/funds/mutual-funds 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.