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There are plenty of choices in the Muni - Bonds category, but where should you start your research? Well, one fund that might be worth investigating is T. Rowe Price Tax Free High Yield Retail (PRFHX - Free Report) . PRFHX carries a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
Zacks categorizes PRFHX 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
T. Rowe Price is based in Baltimore, MD, and is the manager of PRFHX. T. Rowe Price Tax Free High Yield Retail debuted in March of 1985. Since then, PRFHX has accumulated assets of about $3.90 billion, according to the most recently available information. The fund's current manager, James M. Murphy, has been in charge of the fund since January of 2001.
Performance
Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund carries a 5-year annualized total return of 4.56%, and is in the top third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 4.19%, 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. Over the past three years, PRFHX's standard deviation comes in at 3.57%, compared to the category average of -22.69%. Looking at the past 5 years, the fund's standard deviation is 3.25% compared to the category average of -3.21%. This makes the fund more 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. PRFHX has a modified duration of 6.83, which suggests that the fund will decline 6.83% 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. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5.28% means that a $10,000 investment should result in a yearly payout of $528.
While a higher coupon is good for when you want a strong level of current income, it could present a reinvestment risk 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. PRFHX carries a beta of 0.92, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.92, which measures performance on a risk-adjusted basis.
Ratings
However, it is worth noting that 25 % of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.
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, PRFHX is a no load fund. It has an expense ratio of 0.72% compared to the category average of 0.32%. So, PRFHX is actually more expensive than its peers from a cost perspective.
Investors need to be aware that with this product, the minimum initial investment is $2,500; each subsequent investment needs to be at least $100.
Bottom Line
Overall, T. Rowe Price Tax Free High Yield Retail ( PRFHX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, worse downside risk, and higher fees, T. Rowe Price Tax Free High Yield Retail ( PRFHX ) looks like a good potential choice for investors right now.
Want even more information about PRFHX? Then go over to Zacks.com and check out our mutual fund comparison tool, and all of the other great features that we have to help you with your mutual fund analysis 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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Is PRFHX a Strong Bond Fund Right Now?
There are plenty of choices in the Muni - Bonds category, but where should you start your research? Well, one fund that might be worth investigating is T. Rowe Price Tax Free High Yield Retail (PRFHX - Free Report) . PRFHX carries a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
Zacks categorizes PRFHX 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
T. Rowe Price is based in Baltimore, MD, and is the manager of PRFHX. T. Rowe Price Tax Free High Yield Retail debuted in March of 1985. Since then, PRFHX has accumulated assets of about $3.90 billion, according to the most recently available information. The fund's current manager, James M. Murphy, has been in charge of the fund since January of 2001.
Performance
Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund carries a 5-year annualized total return of 4.56%, and is in the top third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 4.19%, 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. Over the past three years, PRFHX's standard deviation comes in at 3.57%, compared to the category average of -22.69%. Looking at the past 5 years, the fund's standard deviation is 3.25% compared to the category average of -3.21%. This makes the fund more 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. PRFHX has a modified duration of 6.83, which suggests that the fund will decline 6.83% 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. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5.28% means that a $10,000 investment should result in a yearly payout of $528.
While a higher coupon is good for when you want a strong level of current income, it could present a reinvestment risk 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. PRFHX carries a beta of 0.92, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.92, which measures performance on a risk-adjusted basis.
Ratings
However, it is worth noting that 25 % of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.
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, PRFHX is a no load fund. It has an expense ratio of 0.72% compared to the category average of 0.32%. So, PRFHX is actually more expensive than its peers from a cost perspective.
Investors need to be aware that with this product, the minimum initial investment is $2,500; each subsequent investment needs to be at least $100.
Bottom Line
Overall, T. Rowe Price Tax Free High Yield Retail ( PRFHX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, worse downside risk, and higher fees, T. Rowe Price Tax Free High Yield Retail ( PRFHX ) looks like a good potential choice for investors right now.
Want even more information about PRFHX? Then go over to Zacks.com and check out our mutual fund comparison tool, and all of the other great features that we have to help you with your mutual fund analysis 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.